Real estate can be an especially lucrative industry and many people do not have previous experience with real estate investments—they might have bought a house or two in the past, or else know what they see on HGTV. That makes the industry especially vulnerable to real estate scams that can wipe people of their life savings—a devastating situation for anyone. Here is what you need to know to avoid falling victim to one of these scams yourself.
Avoiding Real Estate Scams
Fools Rush In
Sure, there are certain plausible scenarios where there is a great real estate deal on the table and when you must act quickly to capitalize on it. However, if you feel undue pressure to the point of being uncomfortable, it should be a major red flag. This is particularly true if you are working with a real estate agent with whom you have not already established a relationship—though it should be mentioned that there have been some cases, even here on the Phoenix area real estate scene, where the real estate scammers have targeted close friends and family.
Speaking of Real Estate Agents …
Before entering into any deal, especially one that seems too good to be true, you will want to do your homework on the real estate agent involved in the transaction. The Arizona Department of Real Estate (AZRE) is a good place to start. There, you can check out their database of real estate licenses, including employment history and disciplinary actions. Many perpetrators of real estate scams are former real estate agents who either lost or let their licenses lapse, which makes sense: They have the background industry knowledge necessary to sound really convincing.
It is also a good idea to check out the real estate agent’s online presence. From a website to social media, there are a gazillion different places where most agents will be active … Unless they have something to hide. There are, of course, some exceptions to every rule. However, if the real estate agent in question is not online at all, they should be able to explain clearly why that is. If there reasoning makes you raise an eyebrow, it should also raise a red flag.
This is not to imply that an online presence alone is enough to determine a real estate agent’s credibility. In 2015, a real estate agent (whose license had lapsed) has a LinkedIn page that made him look like a legitimate realtor and his company, Lamplighter Realty Inc., was listed in the Yellow Pages and claimed to be in business since 1971. But when upwards of 14 home buyers found out that the checks they had written him for “escrow money” were simply pocketed by him instead, they missed out on their opportunities to buy a home and he ended up in jail. The moral of the story is to never send money to someone you have never met for a property you have never properly seen.
Furthermore, be wary of anyone who asks you to wire money for any type of fee or deposit, even if they have sent you appropriate contracts. There is absolutely never a good reason to wire money in this scenario—you are essentially giving them cash that you have no way of getting back. Reputable real estate professionals know this and will work with you to make sure that you can complete the transaction via your checking account so that you have more transparency in the transaction and some way to work with your bank to protect yourself if there should be any dispute after the fact.
Above all, you should absolutely look to work with a qualified real estate agent whom you like and trust.
Questions to Ask Your Real Estate Agent
When can you see the home in question in-person? Whether you are just looking to rent an apartment or are invested in a fix and flip, a trustworthy real estate agent or other real estate professional should be willing to let you look thoroughly at the property in question. Photos are not the same. There have been documented cases, for example, where a “landlord” has told people that they are out of town and can’t show an apartment … “Go to the property and look at the outside and check out this picture to see what the inside looks like.” When prospective renters realized what an amazing deal they were getting, they sent their deposit money quickly, only to realize they had been scammed when they went to the property management company to pick up keys to the property.
Why is the home being sold? While it is true that there are real estate scam perpetrators who are more than capable of making up and telling a convincing lie, most of them will be less than straightforward if there is something amiss. Similarly, you will want to ask for details about any insurance claims against the property and loans taken out with the home as collateral.
Do you mind if I consult with a friend who works in the industry? The odds are, you know someone who is or has worked in the real estate industry. If something seems not quite right, ask them what they think. If you do not know someone who can give you some advice to suss out the situation, give us a call. We can help you sort out potential warning signs and give you an idea of resources to consult or questions to ask before you send any money to anyone.
All in all, the majority of people involved in real estate are honest about their intentions. But with the huge potential for real estate scams to devastate your life and finances, you can never be too careful. A qualified real estate professional will understand that and do everything in their power to make you feel 100% comfortable with the transaction.