The Dangers of Buying real estate from online platforms
The Internet has been cutting out the middleman in almost every business that used to rely on brokers and the real estate industry is one of them.
There are hundreds of millions of people passing through sites like this each month and most of them are there for the single purpose of looking for real estate to buy or sell. It’s also worth noting that many buyers start their search with any online platform instead of looking only at their local MLS listings, so by using online platforms is a great way to gain exposure to a massive and targeted audience at no cost. At the end of the day, these online ads can have some level of fraud or be misleading. One main factor is they don’t tell you the exact neighborhood you’ll be in and for all you know you could be right be across the street from a crack house.
Buying properties virtually
Buyers who are in their 30s and under are doing more than Googling a few keywords to find their dream homes. House hunters are now including property-related hashtags and social media feeds in their searches, and that’s only the tip of the iceberg.
Most major markets now have qualified videography companies practicing in the interior, exterior and use drone footage of staged homes, helping sellers engage potential buyers and make a connection before they commit to a walk-through.
At first sight, it may seem a solid alternative. The online buying-selling platform almost seems too good to be true to solve the home buying pain points, and maybe it is. Integral to all of these platforms is their ease of use to buy and sell residential and commercial property whenever they want to and from wherever they happen to be. Getting set up is as easy as cashing out your money. That means users can easily make emotional impulsive decisions that will greatly cost them down the line.
Online sites and platforms have become excellent places for dishonest sellers who have bought run-down houses, to resell or flip them quickly for inflated prices. Many of the deals will sound too good to be true, and most probably are. The naive are lured by nice photos, beautiful short films, 3D walkthroughs, and a belief that online transactions on big online platforms are generally safe.
Pros and Cons of representation
Unluckily, as useful as it may sound, those who have a background in representing buyers and sellers know real estate transactions conducted through online sales including online auctions come with risks.
There are pros and cons to any investment platform, but if you’re considering it, there are some things to consider before using an online platform to buy and sell a property. Here are a few you should be aware of when interested in online transactions.
- Any online financial transaction comes with risk. Even the most secure online marketplace is prone to the types of fraud that run wild on the Internet. A buyer can win a bid, pay and find themselves on the bad end of a false sale. It’s not unusual for those with ill intent to use these places to clutch some big property sales and then disappear never to be seen again.
- In a conventional real estate sale, all financial transactions are dealt with at closing. An online sale has fixed costs, making it potentially more expensive than a conventional transaction using a real estate agent. Plus the fees will apply whether the property is sold or not.
- If something goes wrong with a property sale or purchase in an online marketplace, there is no process, no appeal, no one to go to for assistance, It’s really just down to the buyer and seller, so beware. A buyer or a seller is taking both personal and financial risk when using an online platform to purchase or sell a property.
- Safeguards that protect buyers, like state laws requiring disclosures about a property’s condition, are rarely used when the transaction is online. Although such laws apply to most transactions, online or not, a long-distance buyer will not necessarily know about them.
- Online platforms often are where homes are advertised but they are not legally owned by the seller. Sometimes an unknown third party puts the property advertisement online on behalf of the owner acting as the seller until the deal is closed.
- Be cautious of “Discount Scam”. This is where sellers agree to a big discount off the asking price of a home, given you sign an agreement to purchase without calling for an inspection. You’ll find this almost exclusively in homes that are being sold by owner, as licensed Realtors adhere to a strict code of ethics and would lose their license if they were to engage in such a practice. Most banks will not allow it either, so there are protections in place in most cases, but not in all cases. A homeowner, who is fully aware that there’s a major flaw that would be found upon inspection, offers to discount the property by 20 percent or more if you agree to purchase on site without having an inspector pay a visit.
Horror Stories
Buying or selling your home can be a pretty terrifying experience in person, and it can even be worse through online platforms. If you’re not aware of the pitfalls and prepared enpugh to prevent them, it could come back to haunt you.
We have gathered some home buyers horror stories from actual people as cautionary tales to others, so that you can learn from their mistakes and stop your dream home from turing into a nightmare. These haven’t happened in Las Vega yet, so don’t be the first one to make the news here.
Eric and Alicia
Recently on 20 July 2018, NBC Bay Area published some sad news relating to an East Bay couple. Eric and Alicia had contacted the network to tell them how hackers stole their $400,000 new house down payment. They don’t want their last name used but do want to share their story. They hope the news would benefit and help other families from suffering the same fate.
Eric, Alicia, and their children planned to move into their new home just the week before. But instead, their down payment vanished. As has happened to so many other homebuyers, the funds were stolen by hackers who tricked the couple into wiring the $89,000 to a scammer’s bank account.
It was painful, but Alicia and Eric told their children the truth about what happened.
Eric and Alicia soon learned they were the latest victims in a scam that’s exploding. Thieves are hacking into the email accounts of real estate agents, mortgage brokers, and title companies. They send lookalike emails that trick homebuyers into wiring huge amounts of money to the wrong bank account.
Alicia and Eric are not the only ones affected. The FBI says this type of attack on homebuyers has grown so much, thieves got away with almost $1 billion last year alone. But the couple says they feel no one in the real estate industry is raising any red flags.
The California Realtors Association tells NBC Bay Area hackers are now trying to target virtually every home sale. But Eric and Alicia say they felt completely unaware. This danger wasn’t widely known nor talked about.
Greg Tanner
This might help explain why Greg Tanner, who says he has a knack for “turning one dollar into two dollars,” is now more than $30,000 in debt.
Three years ago, Mr. Tanner, a pawnbroker in Salida, Colorado – hoping to make money in real estate, went to eBay and found low-price houses for sale in Buffalo.
One ad, for a house at 173 Paderewski Drive on the city’s East Side, read: “Attractive, warm, two-story home has great potential.”
Forty years ago, that might have been true. Through much of the 20th century, the residents of Paderewski Drive, most of them Polish immigrants, took pride in their hard-earned homes.
But since the 1980’s, as working families left the East Side, a neighborhood increasingly vulnerable to crime, many of the houses on Paderewski and the surrounding streets have been demolished or abandoned.
Although Mr. Tanner, 48, had never set foot in Buffalo, he called the seller, a real estate investor named Scott Burton, who had paid $1,000 for the house a few months earlier. Based on what he learned from Mr. Burton, Mr. Tanner said he believed that the house was in decent shape and needed only lesser repairs. Mr. Burton, who has bought and sold dozens of houses in Buffalo, could not be reached for comment.
Mr. Tanner and his business partner paid Mr. Burton $3,000 for the house on Paderewski Drive, and $10,000 for two other houses in the same area, on Lombard Street. They paid with a credit card, using PayPal. Ultimately, the deeds were transferred and recorded in the Erie County clerk’s office.
Two of the houses were considerably run-down, Mr. Tanner said, but it was the 130-year-old two-story house at 173 Paderewski that was to become his annoying burden.
Over the next few months, he paid nearly $7,000 to a Buffalo contractor, recommended by Mr. Burton, who told him that all that was needed were a few thousand dollars in repairs. After a while, the contractor reported to him that the work had been completed, Mr. Tanner said the house was ready to be rented. The contractor e-mailed photos to Mr. Tanner to show his work.
Counting on a profit, several months after buying the Paderewski Drive house Mr. Tanner advertised it for sale on eBay. He quickly found a buyer in Britain: Claire Fennelly, a residential landlord in West Yorkshire who was looking for investment property in the United States.
Ms. Fennelly paid $14,900 to Mr. Tanner and his business partner, and $2,500 more to the same contractor for further repairs
Then Ms. Fennelly decided to do what Mr. Tanner had not: she and her husband got on a plane and flew to Buffalo in November 2003. When they took a cab to Paderewski Drive and arrived at the house, the cab driver refused to let them out. The neighborhood was just too dangerous, he said. When she saw the house, Ms. Fennelly said, it had missing windows, holes in the roof and the siding was gone.
“You’ve never seen anything like it,” she said. “We sat there in the cab thinking, ‘What have we done.’ ”
Ms. Fennelly called Mr. Tanner immediately. He said hers was the first true description of the house he had heard. He promised to pay her back and called the county clerk’s office to make sure that the title would not be transferred to her. Ms. Fennelly said she was still waiting for a refund and had not taken legal action against him.
A few months later, Mr. Tanner received a Housing Court summons for a lengthy list of code violations, so he drove the 1,600 miles from Colorado to Buffalo. He said he received little sympathy from the Housing Court judge. Mr. Tanner called Mr. Burton to demand his money back but could reach only Mr. Burton’s business partner, Stephen Fox, who, Mr. Tanner said, hung up on him.
Calls placed to Mr. Burton’s home in Gulfport, Mississippi, seeking comment about his real estate transactions, were not returned. Mr. Fox, reached in Roseburg, Ore., said Mr. Burton had no interest in commenting. (Mr. Tanner said recently that he was not pursuing any legal action against Mr. Burton or the contractor. “I’m already too drained, financially,” he said.)
Sam Hoyt, a Democratic state assemblyman and co-chairman of the Buffalo mayor’s task force on real estate flipping, whose aim is to educate consumers on the destructive effects of the practice, blames eBay, saying it enables dishonest flippers to lure buyers.
Mr. Hoyt said he had repeatedly appealed to eBay officials, asking the company to make specific changes, like informing sellers that they must comply with New York State disclosure laws and require a copy of written sales contracts. But Mr. Hoyt said he had received little cooperation from the company.
“What eBay is doing, in my opinion, is immoral,” he said. “They have a responsibility to not facilitate activity like this.”
Representatives of eBay say the company has few legal obligations to buyers of real estate on the site. “The people responsible for house flipping,” an eBay spokesman, Hani Durzy, said, “are the people selling these houses and the people buying them sight unseen. How these sellers and buyers are connecting is not as important as the fact that the buyers are not doing the proper due diligence when buying a property.”
(Although eBay holds real estate licenses in many states, it does not act as a real estate agent and does not charge a commission. Instead, it charges a flat listing fee of $100 to $300 for residential property, depending on the duration and the type of listing.)
Joe Tseng
A real estate investor called Joe Tseng from San Marino in Los Angeles County, also saw what looked like a great deal on the online platform eBay. In his case, an apartment building in Youngstown, Ohio. Mr. Tseng did fly to Ohio to inspect the property, which turned out to be a run-down and nearly vacant 11-unit building.
He withdrew from the deal, lost his $5,000 deposit, and learned a hard lesson about buying real estate online. “It’s very dangerous,” Mr. Tseng said.
Ms. Fennelly
Ms. Fennelly, who has been shopping on eBay for years without a problem, said it was the feeling of safety she got from eBay that made her buy property before setting eyes on it. “You get lulled into a false sense of security with the name eBay, then get scammed in a big way,” she said. “If it wasn’t eBay, I wouldn’t have gone ahead with it.”
Mr. Krug
She is not alone. Mr. Krug, who has been a building inspector in Buffalo for 18 years, said he was now dealing with online buyers as far away as Australia and Israel. “You’re talking all over the world, people buying stuff in Buffalo, saying, ‘Nine thousand dollars. I can’t beat that.’ ”
What others had to say
Richard W. Hayman, president of Bid4Assets in Silver Spring, Maryland, agreed with Mr. Durzy that buyers needed to be cautious. “Some of this actually amazes me,” he said. “People seem to think ‘caveat emptor’ doesn’t apply when you’re sitting at your computer.”
Michele Johnson, a resident of Buffalo’s East Side and one of the founders of the task force on flipping, said she had reported hundreds of misleading real estate listings to eBay, with little effect. Still, Ms. Johnson said: “It’s hard to say that taking the listings off eBay would fix the problem. These sellers are just going to find another avenue.”
The house at 173 Paderewski, which was claimed by the city for back taxes Mr. Tanner had not paid, was deemed a safety hazard and razed several weeks ago. The cost of the demolition, which Buffalo expects Mr. Tanner to pay, is $9,000.
Mr. Tanner’s two houses on Lombard Street were also taken by the city. They, too, are in line for demolition. Mr. Tanner, whose business partner has declared bankruptcy, said he lay in bed at night, wondering where he went wrong.
Mr. Krug said Mr. Tanner had asked him the same question. “I told him the first thing he did wrong was buy a computer,” Mr. Krug said.
Is there any hope?
Hundreds of millions of dollars are being spent to build the marketplace of the future and change the tradition-bound brokerage system in the U.S. To date, no one has introduced a new model that is a real runaway success with the exception of Zillow. Even though they are not a transactional broker, Zillow is probably the one real estate model that has dramatically altered the way agents, brokers, buyers and sellers do business.
What have we learned?
Property transactions can be complicated processes, which present many unexpected issues such as property rights disputes, delays in delivery and price changes, where personal services are needed. However, the success rate among sellers is not high because many of them overprice their homes. Many end up selling with a traditional full commission broker.
Whether you’re in the market to buy a home or sell a home, there are people out there who want nothing more than to cheat you out of your hard-earned money.
Realtors know their communities in-depth and have access to information; zoning, building codes, neighboring property histories, that people scrolling through websites wouldn’t have.
So you need to be careful, prudent and diligent and, when in doubt, ask your friendly neighborhood Realtor for advice and/or guidance.
Homebuyers must demand everyone in a home sale use a secure system. Every homebuyer should ask a few simple questions before hiring a real estate agent, title company, or mortgage broker. Ask them, who’s going to be responsible if something goes wrong? What steps are you taking to ensure that it doesn’t?