News & Trends

Can Proptech Prevent Rental Scams?

February 18, 2024

Read the full article on the Commercial Observer

As if it isn’t hard enough to find an affordable single-family rental home in the current U.S. market, an increasing number of housing search scams are plaguing renters.

In addition to being beset by high interest and mortgage rates, as well as a dearth of supply measured in the millions of homes, renters are finding themselves targets of scammers whose nefarious actions produced more than $350 million worth of losses in 2021 alone, a 64 percent annual increase, according to the FBI.

Housing rental scams can take various forms, but a typical one involves advertising real estate online, according to the FBI’s website. The scammer duplicates postings from legitimate real estate websites and reposts the ads after altering them. Often, the scammers use the broker’s real name to create a fake email, which gives the fraud more legitimacy.

Ultimately, the unsuspecting prospective tenant advances money to the scammer as a deposit of some sort. The renters are sometimes provided a key for a self-guided tour of the property, and, in more extreme cases, actually move into the home, only to learn later from the actual owner that they are illegal squatters.

Some proptech startups are attempting to prevent scammers from taking advantage of these would-be tenants, but social media and the desperation of consumers trying to find affordable housing make the task difficult, said Kobi Bensimon, founder and CEO at Seattle-based Showdigs, an automated listing and leasing service for single-family rental owners.

“We help them with their listing process,” said Bensimon of his owner clients. “And we noticed how many times they get scammed and hit by squatters, who are innocent people who got fooled by someone over the internet. That’s how we came up with a set of products to help them tackle this issue as part of the listing process that they have today.”

The problem is so pervasive that the FBI ranks such scams among the top 10 frauds perpetrated nationally, said Bensimon.

“It’s all based on the fact that on Craigslist and Facebook anyone can post an ad for anything,” Bensimon said. “You can today put up an ad for a house to rent at $10,000 a month, and they don’t check that you are actually the owner of the house you’re advertising.

“This is unlike Zillow or, the more professional listing services, where they validate who is the person posting ads. The scammers usually are not even in the U.S. They’re in Africa or Eastern Europe. They look on Zillow and see a house that came on the market, and they target such houses because they’re easy to scam and the average rent is the highest.”

Showdigs attempts to prevent single-family rental scams with “a few layers of defense,” Bensimon said, including constantly monitoring Craigslist and Facebook for its clients.

“The moment our software recognizes an ad that we know should not be there, we immediately notify Craigslist and Facebook that this is a scam: ‘Please take it off.’ With Craigslist, they usually within the hour that the ad will be removed. On Facebook it takes a couple of days. They’re slower to respond.”

The proptech company also tries to prevent scammers from using a false identity to access a client’s property lockbox for a self-guided tour by requiring viewers to upload their driver’s license to a service that banks use to validate the document. The service matches the license with its database to determine whether it is associated with any past felonies or scams. Showdigs also requires a face scan that can be matched to the license photo.

Finally, if the client is willing to pay an additional flat fee, ShowDigs provides a licensed and vetted real estate agent based in the area to conduct the showing, rather than have a self-guided tour, said Bensimon. “We’re basically eliminating the chance of an innocent person thinking that he’s interacting with the real landlord and getting scammed.”

Proptech companies like Showdigs are focused on single-family rentals and helping prospective renters not only because of the shortage and high cost of homes for sale, but also because of the size of the market, Bensimon said.

“It’s single-family and low-density rental housing, duplexes and townhomes that make up more than 70 percent of the rental inventory in the U.S.,” he said. “The vast majority of Americans don’t rent in apartment buildings. Yet, if you go to conferences, you look at the VC investment, the number of companies started, you will think that 99 percent of the market is multifamily.”

Ironically, the same factors make the single-family rental market a rich target for scammers, with examples found in such diverse locations as Jacksonville, Fla.; Kansas City, Mo.; Lexington, Ky., and Palm Beach, Fla.

For Showdigs, scam prevention was not originally a prime focus of the business.

“Our motivation in creating the business was to help clients scale and manage more houses in the larger geographic area without having to hire many people in every market,” said Bensimon, who compares his business model to that of DoorDash and Uber. “But we realized that our business model and our product is very well-positioned to combat those scammers as they became a big problem. Since COVID started we kind of doubled down on that.”

Other proptech platforms focused on single-family rental listings and leasing include BeHome247, ManageCasa and RentSpree, as well as incumbent industry organizations such as the National Association of Realtors, all of which attempt to prevent scams to varying extents.

However, even some experienced proptech entrepreneurs have been victims of rental scams.

One such executive is Venkatesh Ganapathy, CEO at Columbus, Ohio-based LiveEasy (formerly MoveEasy), a moving and home management platform for renters, buyers, sellers or homeowners that works with brokerages and property management companies as an extension of their services. Unlike some other renter platforms, LiveEasy charges the property management companies, not the consumer.

“We had a rental property that we had put out in Columbus a number of years ago,” said Ganapathy. “This gentleman was apparently interacting with someone who pretty much copied our ad and put it on Craigslist in Chillicothe (Ohio). The gentleman was from Chicago. He went ahead and put in the deposit and he wanted to see the place.”

Unfortunately, the man couldn’t see the property because someone else was living there. Realizing he had been duped, the man went to mediation with the then-MoveEasy, eventually reaching a settlement, said Ganapathy.

“We felt horrible about it,” he said. “Since then I’ve not actually posted a single ad on Craigslist. We always use or Zillow, or, more importantly, we use a real estate agent.”

Despite efforts to prevent rental housing scams, the incidents are increasing, said Showdigs’ Bensimon.

“It’s been increasing in a rapid way since 2020 when COVID started and many industry leaders started offering self-guided tours,” said Bensimon. “That’s what triggered the increase.”

The result is that self-guided tours have declined across the industry, he added.

“Many owners who tried that in the past are moving away from it,” Bensimon said. “But many owners are still using it because self-guided tours have a very strong financial incentive. It’s very cheap to manage instead of sending real, live agents to drive around, especially over far distances.”

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