Real estate scams cost buyers, sellers, landlords, renters, and real estate professionals upward of a billion dollars every year. And that’s not even the worst of it. Scammers are becoming increasingly sophisticated, harder to catch, and the financial losses caused by real estate scams perpetrated by these criminals are extremely difficult to recover.
The good news? Proactive real estate professionals are getting better at spotting the warning signs that a real estate scam is afoot and at protecting their clients. Check out my recent video that highlights the five real estate scams you need to know about.
Read on to learn about effective strategies you can use to protect your clients (and yourself) from being duped by some of the sneakiest real estate scams happening now.
1. Closing Wire Fraud
This particular real estate fraud is actually the least common on our list, but it is without a doubt the most devastating and dangerous to our clients. Here’s how it works:
A scammer starts by hacking the email inbox of a principal party in a real estate transaction. Most commonly, it’s a closing or title company. These hacks are difficult to detect because the scammers aren’t doing anything other than observing their target’s communications.
Once they’ve identified an imminent closing, the scammer creates a fake email address from what appears to be a reputable source. Then they provide the real estate buyer with wiring instructions for closing funds, such as the down payment, directing them into their own account.
Unsuspecting buyers then wire their funds to the scammers instead of the closing company, often to the tune of tens or even hundreds of thousands of dollars. Funds wired to nefarious accounts, especially in offshore and often unregulated banks, are incredibly difficult to recover and typically are never seen again.
Obviously, theft at this level leaves buyers completely devastated and affects the sellers in a transaction too, as they no longer have a buyer for their property. Closing wire fraud also impacts the real estate industry as a whole since consumers lose confidence in the way the system operates.
How to Protect Your Clients (& Yourself) From Closing Wire Fraud
Unfortunately, the warning signs of this particular fraud are incredibly difficult to spot since most of the groundwork for this scam is laid passively when the thieves are observing and gathering information about their marks.
However, you can take steps to protect yourself. Ensure that you and your client have a clear understanding of where the wiring instructions are coming from in any transfer of funds. Communicate clearly about who will be sending them and when they will arrive. That way, if they arrive at a time you’re not anticipating, you’ll know to be on alert.
If you are going to exchange sensitive information via email (which, honestly, is a reality in the real estate business), make sure you’re following all the security protocols, enabling two-factor authentication, and keeping all your business email in one place—rather than spreading it across your business and personal accounts.
If you’re not feeling confident in your email server’s security, check out Google Workspace. It is the Gmail interface we all know and can use, but with the added benefits of Google’s extra security and productivity tools.
2. Fake Rentals on Craigslist
Anyone who’s spent time on Craigslist or prospected for leads there knows that there are tons of opportunities, but also some shady characters lurking on the platform, including some real estate scammers. Here’s how they conduct the most common of all Craigslist real estate scams.
First, they head to a reputable real estate website like Zillow and capture listing information for properties currently on the market. They’ll grab listing photos, descriptions, and enough detailed information to make their scam appear legitimate.
Next, they’ll go to Craigslist and create a fraudulent ad for a rental property using the details they’ve scraped off of the property listing. They’ll often list the rental rate below market value to make the offer seem like a fantastic deal and generate communication with would-be renters.
Once a renter contacts them about the property, they’ll use some line like, “We’ve got a ton of interest in our rental, but nobody committed yet. If you’d like to put down an application deposit to hold your place in line, we can do that, then set up a time for you to see the home.”
Of course, there is no home to see, and once that deposit amount clears the scammer’s account, the victim will never hear from the scammer again.
How to Protect Your Clients (& Yourself) From Fake Craigslist Rentals
As a real estate agent, the first thing you can do is start checking Craigslist periodically for your listings being used as fake rentals. This can seem a little laborious at first, but 15 minutes once a week is worth the time to ensure your business isn’t mixed up in these sorts of real estate scams.
If you’re working with renters as clients, make sure you’re the first point of contact with any potential landlords. As a real estate agent, you know reputable landlords would never require a deposit for a showing or disconnecting from a lease. To our clients, these rental opportunities seem almost too good to be true. As their agents, we understand that these real estate scams really are too good to be true.
3. Fraudulent Foreclosure Relief
Our third scam is a particularly cruel one because it leverages a scary and often painful time in someone’s life: mortgage foreclosure. Foreclosure status on a home is public information, which means bad actors can access lists of homes in financial distress.
Scammers will often take advantage of this by going door-to-door and offering non-existent foreclosure relief services to their targets. Services are priced at a relatively low rate of $400 to $500 or more. Homeowners are promised representation with their bank and more time in their home to sort out a solution to their financial problems. Instead, they get scammed, and are left shocked and angry, and, unfortunately, still facing foreclosure.
These scams are especially effective on those who don’t understand their options in foreclosure. Scammers often target the elderly or those whose first language isn’t English, which somehow makes these scams feel all the more menacing and repugnant.
How to Protect Your Clients (& Yourself) From the Fraudulent Foreclosure Relief Scam
First and foremost, educate your clients and your community. Make sure it’s clear that these sorts of services aren’t illegal, and selling them door-to-door isn’t either. However, your clients should be aware that before they write someone a check or give someone their hard-earned cash, they should verify the person’s identity and real-world capabilities.
As real estate professionals, we’re negatively affected by this scam too. When foreclosure rates are high, more homes begin to sell below market rate, thus reducing our total commission earnings. This scam accelerates foreclosure for its victims because they’re being swindled out of money they could otherwise use to legitimately resolve their issues.
4. Short-term Rental Overpayment
This is a version of a widely used phone scam that criminals use to target the elderly in the United States. This scam recently made its way into the real estate industry, affecting owners of short-term rental properties and property managers. Here’s how it works:
A would-be renter contacts a property manager of a short-term rental they find on Airbnb or similar. They start a conversation about a stay with special circumstances—like an extended length stay for a reduced rate—and offer to book privately, outside of the Airbnb booking engine.
At first, this seems advantageous to the property manager, who may be eager to avoid paying Airbnb their cut. Once the scammer senses that enthusiasm, they spring the trap.
The scammer will “accidentally” overpay the landlord for their stay, usually using a stolen credit card. They’ll say something like, “I was supposed to pay $600, but I mistakenly paid $6,000!” They then ask for a refund.
Since they’re not using the Airbnb payment platform, the landlord may feel pressured to refund their overpayment using a more direct method like the Venmo or Cash App. When the property manager relents and repays, the scammer takes the money and runs.
How to Protect Your Clients (& Yourself) From the Short-term Rental Overpayment Scam
This scam hits real estate agents who also work as property managers hard. The best way to protect yourself is to always, always, ALWAYS use established booking and payment platforms. The extra 3% simply isn’t worth the risk of losing much more.
If you’ve got clients who manage their own rental properties, encourage them to carry fraud protection on their business accounts. That way, they’re covered if they fall victim to this scam.
5. Bait & Switch Loan Rates
The bait-and-switch loan rate scam is a tactic used by unscrupulous mortgage lenders to lock borrowers into loans they otherwise wouldn’t choose. Here’s how it works:
A lender will conditionally offer a homebuyer pre-approval for a loan pending a full review of their credit. However, what they won’t mention is a small item stated in the terms of service: the homebuyer’s deposit required to start the application process will become non-refundable should they choose to back out after a specific date.
The lender then reviews the buyer’s application and will approve them for a loan, but at a higher rate than initially quoted. Many people don’t read the terms of service unless expressly told to do so (and an honest mortgage broker would encourage their clients in this direction).
Once past their cancellation date, the buyer then feels pressure to accept this new rate to avoid losing their deposit.
How to Protect Your Clients (& Yourself) From the Bait & Switch Loan Rate Scam
The best thing you can do for your clients is to maintain a list of reputable, reliable lenders in your area. By doing business with reputable lenders, you and your clients can avoid falling victim to this fine-print scam.
Remind your clients that the mortgage industry is made up of people, and there are going to be good lenders and bad lenders out there. Your list is a group of people you’ve worked with directly, such that you can vouch for their skill, care, and ability and feel comfortable referring your clients to them.
Remember, as a real estate agent, we’ve got skin in this game, too. Using high-quality, reliable lenders results in a higher loan approvals rate for your clients, plus more successful closings and increased revenue for you. We’ve got a symbiotic relationship with the mortgage industry. The more we promote high-quality operators, the less oxygen the sketchy ones will get.
6. ‘The Invisible Home’
This scam is especially prevalent in very competitive markets like the one we’re experiencing right now. Here’s how it works:
A “property owner” will offer a home FSBO or even pose as an agent and advertise a home as “coming to the market soon.” When people start to reach out for more information, the scammers will weave a tale about how this is a “confidential listing” and “for privacy reasons” they can’t give all the details about the property yet.
The crooks will then share a bunch of really attractive listing information, appealing photos, and highlight updates, renovations, and other details designed to entice the potential buyer. The interested buyer may feel they’re getting an exclusive sneak peek, but conveniently, nothing can actually be verified with a third party.
Even with these obvious red flags, buyers in a competitive seller’s market may consider putting an offer on a home with contingencies. That’s when the scammer asks for a “good faith deposit” just to make sure the buyer is serious.
How to Protect Your Clients (& Yourself) From the Invisible Home Scam
This is pretty straightforward. If someone is trying to sell your client a house but can’t provide the address, it’s a scam, plain and simple. Don’t let your clients get excited about a property that doesn’t exist.
This scam really burns real estate agents because it wastes our time, energy—and in the worst-case scenario—our clients’ money. Establish strict protocols on how your offers are written to protect you and your clients. It isn’t our job to serve the whims of our clients—it’s our job to protect their best interests.
7. Lipstick on a Pig
If you’ve spent any time as a listing agent, you’ve probably encountered situations with your sellers when they’ve under-emphasized some features on their seller’s disclosure statements. This isn’t uncommon—sellers see their home in the best light possible, and a gentle correction on our part usually brings things back in line.
However, scammers do more than over-generalize—they out-and-out lie. Here’s how the Lipstick on a Pig scam works:
Knowing that a home has major defects like mold, foundation issues, or water or fire damage, a property owner will knowingly make alterations to the property to hide these defects, then lie about them on the seller’s disclosure statement (SDS). Many of these scammers will actually get a home inspector in on the act, contracting for a fraudulent home inspection report that they can then offer to buyers as proof of a property’s clean bill of health. This may also discourage a buyer from getting their own inspection done.
After a sale has closed and the defect is discovered, there is virtually no recourse for the buyer unless they can prove that the seller committed real estate fraud—something that’s difficult to do since this often becomes a “he said—she said” scenario.
How to Protect Your Clients (& Yourself) From the Lipstick on a Pig Scam
Educate your clients about the homebuying process, especially their right to an inspection period on any potential property. To be clear, it isn’t illegal or unethical to offer buyers a home inspection report. But to discourage or flat-out deny a buyer the ability to do their own inspection is a clear sign that something fishy is going on.
As a real estate agent, you have to protect yourself as well. We’re obligated to disclose any knowledge of material defects of a property or first-hand knowledge of attempts to cover up said defects. You open yourself and your broker up to litigation since non-disclosure isn’t protected by errors and omissions insurance. Your failure to disclose can become an incredibly costly mistake to make.
Real estate scams are real, and they affect our industry in real and costly ways. Educating yourself and your clients about the most prevalent real estate scams and learning how to protect both you and your clients is a crucial line of defense that will help make real estate scams like these a thing of the past.
We can also help combat real estate scams by staying in close communication with our industry peers. Join The Close’s Real Estate Agent Mastermind Group on Facebook. This community of professionals is growing every day. It’s a great spot to learn from agents across the country about what’s happening in their business and how you can use their experiences to level up your real estate career.