In the past few years, my team and I have noticed an increase in occurrences of either fraudulent activity or misleading presentation of buyers’ ability to purchase a property. I have been fortunate to be referred almost all of my clients from friends and past buyers and sellers. It’s a rare occasion when I start a professional relationship with someone who comes to me with no connection.
Those are exactly the scenarios when brokers need to be vigilant. An agent’s vigilance when working with an unknown client can protect sellers — and their own professional reputations. Here is what you should look out for when working with unknown buyers.
Types of shady activity to watch for
Some examples of this type of fraudulent activity are:
- Buyers signing contracts and giving endless stories as to why the contract deposit hasn’t arrived.
- Buyers stalling a contract signing and then attempting to flee with a borrowed deposit.
- Buyers attempting to sign high-end leases for residences they cannot afford.
The motivation seems to run the gamut from financial gain to ego-driven fabrications.
5 red flags to look out for
Having the skills to screen buyers before getting to contract stage is essential. Below are some basic signs we look for when dealing with a possible phony buyer.
1. Strange social cues
We typically request a bio prior to appointments. When dealing with a co-broker, this is simple. A phony buyer normally comes direct without another broker. They often insert claims of great wealth in casual conversation after first making contact. The motivation is clear: convey a sense of wealth through cliché and exaggerated topics of discussion.
We also look for inconsistencies.
We have found that unqualified buyers often make promises of larger deals to come, and they ask for contacts regarding the possible purchase of other luxury items such as boats and art.
With that said, many legitimate buyers may have interest in similar luxury items, however the timing is typically less immediate.
2. Digital footprint staged or lacking
If we are not familiar with a buyer who is expressing serious interest, a basic internet search is a good place to start. Most buyers in the luxury segment of the market have some presence on the internet.
Do their social media accounts, if they have any, look authentic or staged? Are there professional pages that mention them, or are they only found on amateurish sites? Sometimes not finding anything at all can also be a red flag.
3. Reluctance to send formal documents
Basic documents such as agency disclosure documents can be a handy tool. Most legitimate buyers should feel comfortable signing such documents. If you are met with a lot of reluctance, it’s a red flag.
4. Lacking proof of funds
After interest from a direct buyer to make an offer, even in condos, it’s best to ask for proof of funds. Some agents may feel awkward asking for this, however, positioning it as a requirement from the seller should reduce any embarrassment.
Letters from bankers are best for this purpose. A follow-up phone call is also essential since we have seen altered and/or fabricated bank letters. A quick conversation with a banker from a known firm goes a long way.
5. Inability to complete a basic application
When dealing with high-end rentals, the listing agent might rely on the condo package for screening. This is an error, as it’s already too late to find issues once a condo package is in.
A simple application with Social Security number, basic contact info and references can be useful. Illegitimate clients will push back on this. Being able to present an offer complete with recent credit score and basic application will be appreciated across the board.
As agents, we need to treat all potential clients in a professional manner. By incorporating these skills and tools into your routine, you will be comfortable asking for this information while maintaining a friendly and professional atmosphere.
If the client is legitimate, he or she should not take any offense to these standard requests for information. We have found that clients who are not acting in a legitimate manner do not want to bother with these protocols and will move on to an agent who isn’t as well-informed. Not only will your sellers appreciate your due diligence, but the real estate community will too.
James Morgan is a real estate agent with Compass in New York. Connect with him on LinkedIn.
