One of the most awful feelings in the world is falling for a scam. Not only can you feel cheated and physically be cheated in numerous ways, but you can also feel humiliated for having fallen for it. Unfortunately, falling for scams happens to way too many people in the world, so it is important to protect yourself and do everything in your power to become aware of red flags before you fall for them.

In the housing market, rent-to-own programs and agreements are one of the most popular types of scams out there. A legitimate rent-to-own agreement can be extremely helpful for both the seller and the buyer, but a scam can absolutely ruin the buyer.

It is extremely important to know what red flags to look for when you are looking to find somewhere to live, so here are six of the most common types of rent-to-own scams.

1. The Offer Is Too Good to Be True

Before you even get started on your rent-to-own journey, you may see an advertisement for some sort of a rent-to-own offer that is “too good to be true.”

If you see a rent-to-own agreement advertised as that:  run.

These types of offers are usually targeted towards first-time home buyers (or first-time rent-to-owners) who are very inexperienced when it comes to the housing market. These types of potential tenants are also typically looking for rent-to-own homes by themselves as they have not yet reached the stage of contacting an experienced real estate agent yet, so they do not have anyone advising them against learning more about the offer.

With these “too good to be true” rent-to-own homes, home prices on the property may be listed as extremely underpriced. A big house touted for a rent-to-own home with low rent payments and a low, agreed-upon purchase price in a seller’s market most likely indicates a scam. The same tends to apply to a home that is extremely overpriced, but that is less common (1).

If you see a rent-to-own home offer like this, it is best to not investigate it further. If you do pursue it anyway, a critical step to ensuring you will be paying a fair rent price during the lease and a fair purchase price for the home at the end of the lease is to ensure you order an appraisal of the property, as well as have a professional conduct a home inspection (2).

An appraisal can help steer your rent and purchase price in the correct direction—whether that is good news for you as the tenant or not—and a home inspection will help you figure out If there are major issues with the property and what you may expect to repair or replace in the future.

2. Little to No Details About the Property

Have you ever stumbled upon a rent-to-own property on the Internet and wanted to learn more about it? You most likely have. When you went to find out more details about the property, were they hard to find?

If you struggle to find details about a rent-to-own property, it is most likely a scam. There will be little to no pictures or information on the property. If there are some details, do they match-up? Do the few pictures look like they fit with the description? If something seems off, trust your gut.

Is the shady listing also calling for sight-unseen applications? If so, it is most likely a scam that is just trying to steal your information. Do not fill out any type of form on this type of listing!

Additionally, you should be aware of the contact for the listing. If the seller is reputable, there should be multiple, active, legitimate avenues to contact them via email, phone, social media and so on. Is there only an email listed as a contact? Did you reach out and have not heard a response back in a timely manner? If you did receive a response back, were there a lot of spelling and grammar errors? Does the seller refuse to take a phone call from you (1)?

All these instances should raise red flags for you that tell you this listing in a scam and to avoid it at all costs.

3. Read Fine Print on The Option Fee

The option fee on a rent-to-own home is typically between 2.5% and 7% of the agreed-upon purchase price of the home, though it is a negotiable term that the buyer and the seller agree upon contractually (3). This fee is also non-refundable and needs to be paid up-front when you initially sign a rent-to-own agreement.

The option fee should completely go towards your eventual purchase of the home, but you need to make sure you read the fine print of your rent-to-own agreement. There could be a clause in there that allocates part of those funds to somewhere else, such as the seller’s pocket.

If you default on your rent-to-own agreement (more on that later), you will be completely out of this money. 2.5% to 7% of a home’s agreed-upon purchase price is a lot more than just paying a month or two of rent as a security deposit on an apartment, so it is important to know where your option fee is going to make sure it is being used properly and to make sure you are not being scammed out of it.

To ensure you know where your option fee is going, it is best to hire a real estate lawyer so take a fine-tooth comb through your agreement so they can alert you if anything fishy is going on with your deal.

4. Read the Fine Print on Your Monthly Payment

Typically in a rent-to-own agreement, your rent payments throughout your lease will be more expensive than other rent payments in traditional rental situations in your area. That is perfectly fine because the “extramoney you spend on your monthly payment should be going towards your eventual down payment on your new home (3).

Should be.

It is important to read the fine print of your rent-to-own agreement so you know what exactly your payment is going towards; this would also be another great reason to hire a real estate lawyer. The lawyer will be able to tell you if your entire payment is being used properly or if the seller is pocketing some of your payment without you realizing it.

A rent-to-own agreement should explicitly say how much of your monthly payment goes towards paying rent, any additional utilities, your down payment and so on. If you find some of your money is going to something unexpected, you will definitely want to know before signing on the dotted line.

5. It Is Super Easy to Default on a Rent-to-Own Agreement

Due to its complexities, it is actually very easy to default—or nullifyyour rent-to-own agreement, which can make it incredibly easy for scammers to take advantage of you. You may not realize it at the time, but most rent-to-own agreements tell you if you break any rules or make one late payment, your entire contract is null and void (3).

This is terrifying because you will not only be out of a home, but you will be out of all the money you have sunk into the property.

Common violations causing rent-to-own agreements to be nullified include paying rent simply a day late even if the seller is notified and verbally says they are okay with it, allowing residents to live on the property who are not listed in the contract, keeping a pet in the residence even if there is a no pet clause, failing to make repairs on the property or replace items on the property in a timely fashion, conducting illegal or criminal acts on the property, and even failing to qualify for a mortgage at the end of your lease.

That list is not all-inclusive as there could be thousands of different clauses in your rent-to-own agreement with specific rules you need to follow, but they are some common situations that tenants get dinged for which can cause them to be scammed out of money and their residence, whether intentional or not.

6. The Seller Is Not Able to Sell You the Property After All

You did it. You reached the end of your lease portion of your rent-to-own agreement without any issues, you have qualified for a mortgage, and you are ready to buy the property outright.

But it turns out, the seller cannot sell you the property after all, so now you are out all the money you poured into the property, a place to live and all the previous time and effort you gave the property.

How did this happen? Why did this happen?

It should be noted that not all rent-to-own agreements will end this way. In fact, plenty of them will result in a perfectly happy ending.

For the times where there is no happy ending though, it is typically caused by the seller never actually owning the property (3). To avoid this, it is important to have an experienced real estate agent vet the seller to ensure nothing funky is going on with their history and with the property.

Another instance where you may not be able to buy the home is if the seller has not paid the property taxes. Not paying property taxes could cause the government to put a lien on the home, which means the seller is then not allowed to sell it to you.

Liens can also lead to foreclosure and if a house is in foreclosure, the seller cannot sell the property to you either. It should be noted that a house in pre-foreclosure is still eligible to be sold.

This is yet another reason why you need to have all your Is dotted and all your Ts crossed when it comes to signing a rent-to-own agreement. An experienced real estate agent with extensive rent-to-own knowledge can help you avoid all types of scams and headaches, but especially these six common scams.

Additional Resources

(1) Upnest.com

(2) Nolo.com

(3) Homelight.com