What you need to know about listing fraud and real estate risks

Fraudulent listings are a concern

When it comes to ad fraud, who exactly is liable for a fraudulent ad that appears online, or in the worst-case scenario, is sold to an unsuspecting homebuyer, is currently unclear, but Miguel Berger, the senior vice president of growth at Ownership shieldsaid consumers won’t hesitate before blaming the cop.

Berger said Property Shield has removed approximately 492,000 fraudulent listings from major platforms for its clients over the years. Additionally, Berger noted that listing fraud alone cost consumers $173 million in 2024, according to a Federal Bureau of Investigation (FBI) report.

Ad fraud, also known as seller impersonation fraud, is most common in Atlanta, Dallas, Phoenix, Denver and Los Angeles, according to Property Shield data.

“We found that on average between 15% and 25% of listings in a given market are fraudulent – ​​regardless of small or large markets – the problem exists virtually everywhere,” Berger said.

According to Berger it is fraudulent entries can lead to burglary, squatting and even property damage, creating a ‘liability time bomb’.

And while awareness of the issue is important, Berger noted that fraudsters are becoming increasingly sophisticated in their attacks and deceptions.

“Fraudsters are becoming more and more sophisticated, so whatever we think we know, we don’t know,” Berger said. “Proactively monitoring listings is the only scalable solution.”

Errors and omissions are not just the cost of doing business

For real estate professionals, there may be nothing more mundane than E&O insurance. But while many simply write it off as a cost of doing business, says Steven Stecker, a senior vice president at an insurance company Victorhighlighted some trends that real estate agents should be aware of.

In 2024, Stecker said his company paid $37 million in E&O claims.

“We pay a lot of claims and the industry in general pays a lot of claims,” Stecker said. “Additionally, what we’re really seeing, especially as a result of the pandemic, is that both the cost and frequency of claims are increasing so that we have a severity and frequency problem.”

Stecker said that while the frequency problem is starting to stabilize, the severity problem continues to increase.

This increase, according to Stecker, is illustrated by the fact that the average paid loss for a real estate agent has increased by 60% over the past decade. The driving force behind these increases, according to Stecker, is social inflation, which includes everything from rising housing costs, to rising construction costs, to the relative success rate of lawyers going after real estate industry players.

When it comes to where Victor Insurance sees the most claims, the South tops the list, accounting for 33% of all E&O claims, while the Midwest claims the smallest share at 19%. In terms of claim types, negligence is the most common with 3,450 claims in 2024, followed by misrepresentation with 2,097 claims. In total, there were 755 claims for breach of fiduciary duty. And even though it wasn’t in his image, Stecker warned officers about double-intervention, claiming it would seriously increase their liability.

“If you’re acting as a double agent, know that you’re really putting yourself at risk, because from an insurance perspective, the only person we can go after is you, because you were on both sides of the transaction. There’s no one else to blame, and it really lends itself to that misrepresentation,” Stecker said. “We see it all the time. It really is a huge driver.”

The unsexy side of AI

While AI may be all the rage, before agents and brokers go all-in on AI, Rick Janson, a Denver-based real estate agent and AI productivity consultant, said there are some security concerns they should be aware of if they want to limit risk.

Janson acknowledged that many agents and brokers are using AI to automate tasks like data entry and marketing and to do things like comparative market analysis, but he asked agents if they were using the free versions of things like Google Gemini or ChatGPT to do this because the free versions, and even some of the lower price ranges of paid versions, use the data that users input to train their models.

“It all has to be trained on data somehow,” Janson says. “So if you use the free version, they actually use your data to train the model and further refine the model.”

Janson told agents never to upload a customer’s bank statement or enter a Social Security number into an AI tool with a large language model.

“Even if you use the paid version, especially on ChatGPT, you will need to opt out by using your data to train the model,” Janson said. “Always verify the security of the platform before processing sensitive data, and always protect the customer’s personal information, contract terms and negotiation data.”

In addition to protecting data, Janson also warned that agents should double-check any output from their AI tools because the tool can generate language in marketing materials or listing descriptions that violates Fair Housing laws.

“Even with virtual staging, this can distort the dimensions of the room, so I always place a watermark on virtually staged photos and include the approximate dimensions of the room,” says Janson. “You just want to make sure you comply with the MLS and broker rules.”

If one conclusion could be drawn from the audience, it was this: risk management is no longer extra credit. It is the cost of continuing to do business. And for agents who want to protect their clients and themselves, the time to take the plunge is now, not “someday.”