Article from Real Estate News, Agents Decoded: How to avoid falling victims to scams

Agents Decoded: How to avoid falling victim to scams 

Shady lenders and vendors make big promises that are often too good to be true. Learn how to vet them, and how to spot red flags.
By: J. Philip Faranda

When the Great Recession hit in 2008 and the housing market was in freefall, it was a delicate balance to budget wisely and invest in smart marketing. And as the real estate owned (REO) niche exploded, my phone and email started buzzing with promises of connections to asset managers ready to list foreclosed properties. 

It was a tempting thing. I saw the growth in the sector, and getting my foot in the door made sense. But hundreds and sometimes thousands of dollars later, the fee was paid — but there were no listings, and the companies vanished. 

Snake oil salespeople and fly-by-night gurus promising the secret to more transactions are not new to the industry. Today, my inbox is loaded with offers of lead generation magic and schemes to make me a social media superstar. If you are a broker, then you get additional solicitations from people promising recruiting shortcuts, back-office software that will make your life run on autopilot and various other offers that are too good to be true. 

At best, these solicitations are a nuisance. At worst, they can cause significant financial peril. But if you know how to vet these come-ons properly, you can avoid a costly mistake.

Lead generation 

This comes in many forms, but most commonly you’ll hear from someone who claims to have an oblique association with Google or another social media giant like Facebook. In reality, paid ads and social media are very crowded marketing channels. To use them successfully, you either have to spend a lot of money or create memorable content consistently. 

The best strategy with this kind of solicitation is to ask for references, and then research best practices. Pro tip: The guy calling you from the “Google department” doesn’t have any connection to Google whatsoever. 

Working capital

The technical term is “merchant capital advance,” and these are very aggressive sales pitches that promise you tens of thousands of dollars within 48 hours — without a credit check. All they need is a few months of bank statements, and this can be tempting if you have an uncomfortable cash flow or credit position. 

However, MCA’s are not technically loans, and companies that offer them can therefore charge far higher fees. If you were to get an SBA loan for $100,000, it could be paid back over multiple years at a reasonable interest rate. With an MCA, providers are technically buying your invoices and not subject to usury laws. This loophole allows them to be virtual loan sharks. A $100,000 MCA payback term could be as high as $140,000 with daily or weekly withdrawals from your operating account over a much shorter period of time, typically a year. Worse, they file UCC liens on businesses, which make it impossible to borrow conventionally. Typically, there is little to no discount for early pre-payment. Just say no.

SEO pitches

“I’ve been on your website, and it’s missing key components that are losing you business! I can solve this for you!” I’ve always wondered how they found my supposedly flawed site to begin with — I’m fairly certain they haven’t, in fact, been on my website or blog. Yes, 90% of home searches start online, and you want a competitive online presence. But the best choice is almost guaranteed not to be someone pitching you out of the blue. If this could fill a need for you, find a great, well-trafficked site out of your market area and ask who they use for SEO support. 

Third-party grunts

More than anything else lately, my spam folder is overflowing with solicitations from companies promising me 5 or 10 appointments a month with sellers ready to sell, or pitches from virtual assistant companies who will do my work at a fraction of the domestic cost. There is simply no way to ensure quality control or accountability when employing offshore or off-site parties, to say nothing of the compliance headache they could cause in your name. 

Like with SEO, these services could be a good idea, but getting a vetted source from a colleague with references is the kind of essential due diligence you cannot afford to skip. 

Other red flags

Offers that expire that day, overzealous and pushy sales pitches, and subterfuge like dropping the names of colleagues or brand names they have no affiliation with are all-too-common tactics to look out for. And then there is the old gut check: If you feel weird about it, there is probably a reason.

Market changes bring about financial strain, and there are people out there who will use that to their advantage, exploiting it via commissioned sales professionals. As with any type of offer or product, if the person pitching it is unwilling to undergo scrutiny, you should take a hard pass.

J. Philip Faranda is a manager and associate broker at Howard Hanna | Rand Realty serving Westchester and Putnam Counties, just north of New York City. He was previously a broker-owner at J. Philip Real Estate, the top independent brokerage in the two counties by transaction sides, which he founded in 2005. He also writes a real estate blog which has been cited by major media outlets. The views expressed in this column are solely those of the author.