The real estate industry is always changing, and in many respects, changing more rapidly than ever. It’s the change that so many of us enjoy about this industry. There is always something new to learn, and the industry is constantly evolving.
Unfortunately, the same can be said for fraudsters who are always evolving in terms of new schemes to take advantage of buyers, sellers, and Realtors. With rapidly advancing technology at their fingertips, fraudsters are finding new ways to scam and deceive like never before. In addition to constantly learning everything else that goes along with being a real estate professional, being up to date on the latest fraud schemes and being as well-versed as possible on what to look out for is more important than ever.
The latest rapidly spreading scheme is as simple as it is scary. Fraudsters have come to find out that if they draft their own unique scam contracts, it is too easy to spot the unconscionable terms that they try to get unsuspecting Sellers to agree to. So, they have now taken the “Trojan Horse” approach by burying terms which no Seller would otherwise agree to within the FAR/BAR contract, in an attempt to make it look like the boilerplate FAR/BAR contract language which most Realtors are used to. A recent example our firm discovered included the following language buried in the property inspection section of the FAR/BAR Contract:
“Buyer may, in its sole discretion, obtain a repair/replacement estimate … and elect to reduce the Purchase Price by the lessor of (1) 150% of the repair estimate or (2) 25% of the purchase price.”
Additionally, the added language included a provision that if Buyer elects to reduce the purchase price, Seller can cancel by giving the Buyer the Earnest Money Deposit back, “plus a cancellation fee equal to 10% of the Purchase Price.” Thus, the Buyer is either going to get a property for much less than it is worth, or they are going to get 10% of the purchase price from the unsuspecting Seller as a cancellation fee. The key to this scheme is that the added provisions are made to look like they belong by using the same font and style as the FAR/BAR Contract. So, if you are not paying attention, it can easily be missed. Pretty scary! So what can be done?
Review and Verify
The first line of defense to avoid the scenario described above is the most obvious: read the entire Contract every time, even when there is a counteroffer made. In fact, especially when there is a counteroffer made! Although the scam described above is designed to blend in and be inconspicuous, it should still stand out as unusual if one takes the time to read the entirety of the Contract and all counteroffers and addenda.
In addition to reading the Contract on your own, there are fortunately tools that can easily pick up on these hard-to-find changes to the Contract. AI applications such as ChatGPT and others can easily distinguish between the boilerplate version of the FAR/BAR Contract and one that has been revised by simply uploading the two and asking it to give a list of differences. Although it might seem like a lot of additional work, using newly available tools like AI applications is actually very quick, easy, and in most cases free. You will be wishing that you did if you find yourself in an unfortunate scenario like the one described above, where language is discovered in the Contract after it is too late.
For more tips in defending against these and other fraudulent schemes, we encourage you to contact your trusted local real estate attorney.
