- One of the most common real estate scams involves fake listings requiring the victim to wire deposit money overseas in exchange for receiving keys in the mail.
- Read and understand a rent-to-own contract in its entirety. Know whether it's an option or obligation to purchase the home, and the amount of rent set aside for the purchase.
- Sellers may not want to disclose everything if they think it will decrease their profit. But sometimes sellers omit problems on accident. Ask lots of questions.
Being in the market to buy a new house can be an adventure full of excitement as well as unknowns.
Since buyers are working within a specific budget, they’ll probably pay close attention to special deals. But beware — sometimes deals that seem too good to be true are scams, and not everyone who offers a helping hand is really going to help.
To prevent a bad property deal, help your buyer clients avoid these common traps:
1. Scams
According to the National Association of Realtors, 90 percent of buyers used the internet to search for a home during the buying process in 2012.
That number increased to 92 percent in 2015. Scammers are aware that people search for properties online, and they use the ease and anonymity of the internet to take advantage of others.
One of the most common scams involves fake real estate listings requiring the victim to wire deposit money overseas in exchange for receiving keys in the mail. It sounds like an obvious scam but people fall into this trap all the time.
Another common scam has been dubbed the “loan modification scam” and involves fake representatives from government housing agencies offering to modify your mortgage.
The victim pays a hefty five-figure “processing fee” and never sees the agent (or their money) again.
2. Not reading or understanding your rent-to-own contract
Having a contract is a necessary part of doing business, but it doesn’t guarantee protection from a bad deal. It’s your responsibility to read and understand every piece of any contract you sign.
The “rent to own” option is like renting a house with the option to buy at the end of your lease. Rent is set a little higher, and a portion is set aside to be applied toward the purchase of the home.
This process works well for people that want some time to build up their credit so they can get a better interest rate on their loan, but there are some risks involved.
Pay attention and protect your investment
Since you’re paying a premium on top of regular market rent, you want to pay close attention to your contract to make sure you don’t skip anything.
Does the contract explicitly state that buying the home is an option, not an obligation? Does the contract detail exactly how much of the rent is being set aside for the final purchase? Do you know how long you have to make the decision to buy?
In addition to ensuring your contract is clear, there are other rent-to-own pitfalls including knowing that as the tenant, you’re responsible for all maintenance and repairs.
Court intervention
If you find yourself in court over a contractual disagreement, the court’s job is to figure out what both parties intended when creating the contract.
If the ambiguity of the contract is found to be heavily in favor of the person who drafted the agreement, the court will likely rule against that party if it appears to have been intentional.
Do your due diligence ahead of time by asking the other party to clarify any points in the contract you don’t understand before signing.
3. Non-disclosure of problems
Buying a home can be like buying a used car; there will always be something that needs to be fixed, and you have to either accept it or find another option that you like better.
The laws vary by state, but generally speaking, the seller is required to disclose any significant issues with the home including any leaks, pest problems or overdue repairs.
Sellers may not want to disclose everything if they think it will decrease their profit. But sometimes sellers omit problems on accident.
Just like a used car, people get used to living with certain defects, and it doesn’t occur to them to mention it during the sale process. The best way to avoid this is to ask questions.
When you ask detailed questions about the home and its history, you give yourself the opportunity to uncover elements of non-disclosure the seller may have forgotten about.
Trust yourself
Being aware of the potential traps in buying a home automatically makes you less likely to fall. Always trust your own judgment and intuition. Nothing is worth risking the balance of your savings account just to save a few bucks on a 30-year mortgage.
Anna Johansson is a freelance writer, researcher and business consultant specializing in entrepreneurship, technology and social media trends. Follow her on Twitter and LinkedIn.
