Rental Fraud on the Rise Amid Highly Competitive Housing Market
Fraudulent and suspicious activities on digital rental platforms are on the rise, such as fraudsters posing as landlords to steal a security deposit or rent payment, according to a recent survey conducted by Dwellsy. More than 60 percent of renters reported encountering such activities. Additionally, a staggering 44 percent of respondents either personally experienced or knew of someone who suffered financial losses due to rental fraud.
The survey findings show that roughly 85 percent of renters experienced losses exceeding $400, with 19 percent enduring losses surpassing $5,000. Extrapolating from these responses, it is estimated that annual losses resulting from rental fraud could reach a staggering $16.1 billion, according to the survey.
The current landscape of the rental market, characterized by soaring housing prices, inflation and limited supply, can make navigating real estate scams an unfortunate norm during the rental search process.
According to May statistics, average monthly asking rent nationwide is $2,016, about 77 percent above the median gross rent in 2020. As a result, 41 percent of renters are now spending more than 35 percent of their income on rent. These market challenges leave individuals vulnerable as they scramble to find accommodations within their budgetary constraints.
However, tenants themselves can also contribute to the rise in fraudulent activities within today’s competitive environment by submitting falsified tenant applications. In their desperation to secure leases, some renters have resorted to purchasing counterfeit pay stubs, credit scores, Social Security numbers and bank statements online. In extreme cases, individuals even submitted fake background checks and bogus references to conceal potential criminal activity or other disqualifying information.
The falsification of information often involves tactics such as editing legitimate employer letters to inflate income, embellishing LinkedIn profiles, and enlisting friends to pose as former landlords. These deceptive practices are aimed at enhancing the chances of securing apartments that would otherwise be unattainable.
To avoid scrutiny, fraudulent tenants frequently submit documentation, such as pay stubs, that may or may not be required. Some even register fake businesses and reference them in forged employment letters.
Given the extreme competitiveness of the rental market and a potential economic downturn in the near future, it is likely that fraud rates will continue to escalate in 2023. Historical data from the peak of the Great Recession in 2009 supports this prediction, as the FBI’s Internet Crime Complaint Center recorded a 22.3 percent increase in online crime reports compared to the prior year.
While technology can be exploited by fraudsters, it also holds potential to be part of the solution. Implementing secure and standardized tools, such as online rental screening software, can streamline and secure the rental application process while saving time and improving efficiency. Another crucial step is standardizing rental listings and making them mandatory on multiple listing sites, not unlike for-sale properties, ensuring equality and security. This move would prevent listing websites from monopolizing rental listings, making them challenging to find and leaving room for inconsistencies, errors, and outright falsified information.
The disturbing findings of the Dwellsy survey call for immediate action from all of those serving the rental market. Collaborative efforts are essential to implement standardized solutions that prioritize security, transparency and efficiency in the rental market. By doing so, all parties involved — renters, landlords and agents facilitating the process — can be better protected from fraudulent activities.
Michael Lucarelli is the CEO and co-founder of RentSpree.