How to Spot Potential Scams and Fraudulent Real Estate Deals

No. 6 will shock you and may save you or your loved ones from losing hard-earned money.

Did you know that in Lagos alone, according to the Lagos State Government, the Lagos State Real Estate Regulatory Agency (LASRERA) has received over 1,702 petitions related to real estate fraud between 2020 and now? This number excludes cases already in litigation and unreported cases.

The following information will help you identify these scams from afar, react to them and consequently conduct safer transactions in the industry:

1. Too-Good-to-Be-True Deals

Within the real estate industry, deals come in different forms and sizes. As someone passionate about building wealth through real estate, sifting through the chaff towards legitimate deals is a life skill every real estate investor must possess. Oftentimes, exciting deals offering low market value in comparison with their valuable attributes such as prime neighborhood etc., are trumpeted to swindle unsuspecting investors. You must know the difference between a “Distressed Sale” and a Too-good-to-be-true deal. While they are both similar when examining the sale price of the property, other tell-tale signs that differentiate both of them are: Unnecessary haste to close the transaction, Pending lawsuits, Pedigree of the seller etc.

Remedy I: Take your due diligence very seriously by researching the average prices of similar properties to compare the offer.

Remedy II: Contact a property lawyer or a registered estate surveyor and valuer.

2. Pressure to Move Fast

This had to be a point on its own considering how often it is used to fraudulently dupe unsuspecting investors. Whenever a seller insists on closing a deal within a specific timeline, that’s your cue to slow down the transaction as much as possible while carrying out forensic-level due diligence on the property. Do not take any anomaly for granted.

Remedy I: Slow the process down by taking your time to review all documentation given to you. Visit relevant agencies to verify, if necessary.

3. Lack of Proper Documentation

When you’ve dealt real estate long enough you will know these antics from afar, I dare say even smell them.

Scenario 1: “Our dad died and we have not gotten around to perfecting the new title, and we can’t even lay our hand on the original title. But hey, you have to believe us, we are genuine sellers of this land, or do we look like people who fraudulently dupe people for money?”

Scenario 2: “Our documents got burnt in an inferno”

Scenario 3: “We do not have any title, it is a family land, the community is aware” and many others

These do not necessarily imply that they are fraudulent, it is only a call to action to conduct a forensic level due diligence before moving forward. Due to the sensitivity of this, either abandon the transaction entirely or consult a professional to take over.

4. Unusual Payment Methods

It is important to keep track and evidence every aspect of a real estate transaction, from your written correspondences to pictures of your physical meetings with representatives of the buyer/seller, depending on which side of the divide you’re in. If the entire transaction is a soup, the payment aspect is the meat, therefore you have to ensure that there is relevant documentation from your bank (depending on the scale of the transaction), as well as an insistence on proper KYC of the seller’s details by their bank. For smaller transactions, in addition to KYC information, always keep payment records, either by way of transaction receipts or tellers.

If a seller insists on receiving cash solely, that’s a cue to get very far away from that transaction, or else you will most certainly learn the hard way – this includes jail, probably on money laundering charges.

Remedy: These are signs that you may be dealing with suspicious individuals. Use traceable and secure payment methods, and if possible, consult a registered lawyer or estate surveyor and valuer.

5. Seller is Out of the Country

Usually, the seller not being available is a major red flag for discerning buyers. They will insist on handling the transaction remotely with a friend/associate playing the role of intermediary. Again, this is not a clear-cut case of fraudulent activity but if I were you, I would dig deeper before investing my hard-earned funds.

Remedy: Only entertain scenarios like this if the seller is being represented by a reputable agency. Secondly, hire a professional to represent you.

6. Little Upfront Costs Scams

Real estate upfront cost scams are becoming more commonplace in our society, which is very counterintuitive considering that they defeat the purpose of its creation. Upfront cost scams, as the name suggests are fraudulent activities that involve the payment of a particular amount to a vendor as a medium of securing the brief pending the completion of the agreed sum within a predetermined period. This initial amount is the focus of the scammers, as soon as they receive this payment, you will never hear from them again. At its core, this is a wonderful initiative that encourages all and sundry to partake in transactions requiring high acquisition costs with the condition to spread out payment over a period of time, usually 12 months.

Scenario: An agent takes you to a property you are interested in, the agent tells you that the owner of the property needs some money to sponsor his child’s wedding ceremony, so therefore, he is willing to accept 50% payment immediately and the land is yours. The rest of the payment can be made within the space of a year, at your convenience.

Remedy I: Abandon the transaction immediately.

Remedy II: Conduct forensic-level due diligence

Remedy III: Consult a registered lawyer or estate surveyor and valuer.

7. Third-Party Handling of Transactions

This is pretty straightforward, ensure that the payment details on the offer letter reflect one of the following: The owner of the property, the ‘reputable’ agent representing the seller, or an established escrow service, depending on the scale of the transaction.

I repeat do not make payment to any insignificant third party or anyone who isn’t a major stakeholder in the transaction. Usually, your banker can advise you on this one.

Considering the state of the economy and the high cost of goods and services, real estate transactions mustn’t be rushed. Proper due diligence must be carried out, and any confusing details cleared up before going through with the transactions.

An increase in the success rate of sales transactions helps boost investor confidence, increases the likelihood of other transactions, and potentially contributes to the growth of the industry.

Are you interested in investing in real estate in Nigeria?

Bluemeen Partners is a real estate consulting firm with particular expertise in Property Portfolio Building and Management. Contact Bluemeen Partners at +2348163802140 or +2349156379840 for consultation and possible inspection of our various properties that are for sale.