The real estate industry is rife with scams, given the huge amounts of money involved in buying and selling it.
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One of the most common themes? Induced urgency combined with an upfront fee or deposit. “Fraudsters are fond of making things urgent, and then asking you to cough up money,” explained Mark Sanchez, Senior Real Estate Manager at Gator Rated. “Never neglect to do due diligence.”
After polling real estate professionals, these three stories stood out as scams and red flags to avoid.
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Seller-Provided Inspection Documents
In one of his real estate transactions, Sanchez encountered a house that seemed like a great deal at first. After taking a closer look at the basement however, he grew concerned about foundation problems.
“The seller never informed me about the foundation issues, and then when I started asking questions, they provided bogus inspection reports to hide the damage.
“When something seems wrong or like it is too good to be true, go with your instincts,” he continued. “Bring in a third party inspector that will pick through the whole property. A few hundred dollars spent on such an inspection may save you tens of thousands of dollars later.”
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Fake Condo Development
Today, Fred Loguidice is a seasoned real estate investor and founder of Sell My House Fast Wisconsin. However, early in his career, he lost five figures in a development scam.
He explained, “A colleague I knew — or at least thought I knew — approached me with a ‘can’t miss’ deal on a pre-construction condo in a seemingly up-and-coming area. The price was significantly below market value, and they painted a picture of massive returns within a short timeframe. There was a sense of urgency, a limited-time offer that I had to jump on quickly.”
“Everything seemed legitimate on the surface,” Loguidice continued. “There were contracts, fancy brochures, even virtual tours of the planned development.
But as the months went buy, Loguidice said that excuses including permitting delays, material shortages and more began to mount, and progress stalled. “My colleague became increasingly difficult to reach, and other investors I connected with online were experiencing the same issues,” he elaborated. “I hired a lawyer to look into the development, and it turned out the original plans were never fully approved, the developer had a shady history, and the ‘limited-time offer’ was just a pressure tactic.”
Fortunately, Loguidice said since he acted relatively quickly on seeking out legal guidance, he was able to recover some of his deposit after a long legal process. Even so, it cost Loguidice a lot of time, money and sleepless nights.
Fake Lender
Real estate investor Brian Rudderow of HBR Colorado sometimes transfers contracts to investor buyers. Investors who buy fixer-uppers often fund them with hard money loans.
“I mistakenly referred a buyer to someone posing as a hard money lender on LinkedIn,” he said. “The lender asked my buyer for a $10,000 good faith deposit.” This was, of course, a red flag in itself — lenders earn their fees at closing, not before.
“I was unaware of this, and had no chance to warn the buyer,” Rudderow went on “They sent in the deposit and never heard from the ‘lender’ again. I called the bank where the money was wired, but the manager refused to give me any information because it was a violation of customer privacy.”
Bottom line: Before you open your proverbial wallet, do your due diligence.
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This article originally appeared on GOBankingRates.com: I Got Scammed in Real Estate Deal — What To Watch for and How To Avoid My Fate
