Real Estate Fraud Heats Up in Active Markets
Based on contact with my office, Real estate fraud is more common in an active market than a slow one. Intuitively, I expect real estate fraud to occur more in a slow buyer's market. I think sellers would be willing to cut corners on disclosures in order to make a sale. Yet, for my business, this is not the case.
In a slow market, I get vastly fewer calls and the degree of fraud is significantly less in a down market. But when the market begins to heat up, that is when fraud increases including the severity of the deception.
I think an active market produces more real estate fraud for a variety of reasons. One, there are more opportunities to commit real estate fraud because more homes are being sold. Two, buyers have to act quickly to get the house they want so there is pressure to move fast rather than carefully and this makes the buyer prone to overlooking possible red flags. Three, the same quick process affecting buyers is affecting sellers causing them to disregard red flags that they should reveal. Four, realtors are moving faster also and they are pressuring buyers and sellers to close in disregard for caution that would expose defects and conditions in the house.
Finally, the momentum in a sellers' market creates a kind of cockiness or arrogance about selling. The sellers believe the buyer is lucky to get the house even with various conditions or defects.
So an active market does not cause people to act more fraudulently, but instead, the sheer speed of the process means more mistakes and errors are made that ultimately become real estate fraud.