Personal Finance

Energy Sales Scams

Energy market de-regulation

In Ontario the energy market (natural gas, electricity) was de-regulated a few years ago to introduce competition in the energy marketplace. This has created a lot of problems because the energy resellers use door-to-door salespeople to sell the contracts and many of them seem to be crooks.

The problem

The biggest danger from door-to-door salespersons of any kind is that if they knock on enough doors they will find people who are vulnerable to making a hasty decision – old people, mothers with a young child or two, someone who is sick. All these groups are people who might normally be able to see through the lies of an energy market reseller but sometimes fall prey and sign a contract that they either don’t want or don’t understand.

My experience

Two summers ago I was relaxing on our back deck when someone knocked on our door. It was quite a loud knock and I originally thought it was one of the neighbours who was making some noise. I ignored the noise and kept enjoying the fact that my new little baby was asleep. Then I heard the knock again – this time even louder. Still I didn’t move – until the third set of knocks and I heard my wife who had been sleeping in the front room with our two week old baby, talking to someone at the door. It was only then that I realized someone had been knocking on our door – immediately I was quite annoyed that someone would keep knocking even though we weren’t answering the door.

The trap

Since I knew my wife was in even more of a sleep-deprived zombie state than I was, I quickly went into the house and talked to the person at the door. The man seemed normal enough and had his two kids with him – probably around 10 years old. He asked me if I had received my “discount” on my natural gas bill yet? I said no since I had not heard of any sort of discount. He then asked me to go and get an old gas bill and he would make sure I would get the discount. Now at this point, anybody who has any sort of intelligence would probably start to smell a rat – but given the fact that I was extremely tired and overwhelmed by the new baby – didn’t suspect a thing. While the “suspicious” part of my brain was taking a rare nap, the “greed” brain portion was wide awake and prompted me to listen to the guy and go an find an old gas bill. When I couldn’t find one I returned to the door and asked the guy if I could still get the discount without an old bill. I asked him if he could look up the account number at his office since I thought he worked for my natural gas provider. He said it shouldn’t be a problem and asked me to sign a document he had on a clipboard. On top of the clipboard I noticed quite a few gas bills that he had obtained from my neighbours for their “discount”.

The awakening

I took a look at the paper (I wasn’t completely brain dead) and noticed right away that it was a contract where if I signed I would be agreeing to a fixed rate natural gas delivery for three years. At that point I knew exactly who and what he was and and that he was trying to rip me off. I told him that this was not a discount but a contract for gas delivery. He said no – it’s for a discount on your gas bill and then showed me a table that indicated that his company’s gas charges had been lower (supposedly) then my provider. I even asked him what company he worked for and he wouldn’t say.

The punishment

Had he not had his two kids with him, I think I would have been quite tempted to literally throw him off my porch since I was quite annoyed by then. I was angry at him for waking up my sleeping family and trying to rip me off. I was also a bit angry at myself for almost letting him get away with it. I did tell him what I thought of him and his lies and told him to get lost.

The lesson

I learned that even if you are as sharp as a tack (or like to think you are), it’s important to remember that sometimes your guard is down whether you realize it or not and people like door-to-door salespersons can take advantage of that. It’s also a good idea to keep in mind that older friends and relatives might have more of those moments where they let down their guard so you should talk to them about not signing anything at the door.  This can also apply to people who are looking for charitable donations at the door.  Many of them are professionals who’s job it is to solicit donations so make sure that you be careful with them too.

See another post on this problem.

Real Estate

Higher Than Normal Rent Scam

With scams the best defense is often to discuss them and let people who haven’t run into them know how they work. Unfortunately, talking about scams can seem like a “how to” for scam artists, which IS NOT my intention here. I always love reading about scams and cons, in part to protect myself, and in part out of amazement at how devious people can be when they’re trying to part us from our cash. Depending on the level of interest, I may occasionally post more scams I’ve encountered, what the person was trying to pull and what might have happened if someone fell for it.

Some people starting with real estate investing, buy into the guru hype and will run around trying to buy stuff as quickly as possible. One scam that preys on this group is what I call the “Higher Than Normal Rent Scam”.

How it works is you find a piece of property that’s already tenanted, and it seems to be a great price for the rent it commands (say it costs $200K and is earning a rent of $2500 / month). You plug the numbers into your “get-rich-quick fast-calculations (patent pending) calculator” and decide this is exactly what the guru ordered. Talking to the seller, he encourages you, saying he’s selling to buy bigger investments himself and that this one will make you tons of cash. There’s only 1 month left on the tenant’s lease, but “he’s going to stay forever” you’re assured.

Soon after closing, the tenant contacts you and reluctantly informs you that he’s been moved elsewhere and won’t be renewing his lease. You wish him the best of luck (plotting not to return his security deposit depending on which guru low life you’ve been listening to) and decide to raise the rent and make it even more cash-flow positive (“this is how the rich think” you say to yourself, patting your own back).

The next month no one is interested in renting your place for $2700 / month (even though it would help you be cash flow positive, the nerve of these tenants!). You reluctantly drop it down to $2500. Still no takers. Time goes on, and finally you manage to rent it out to a shifty looking guy who has “lost his ID” and promises to get you a first-and-last month deposit “real soon” if you let him move in now.

Depending on who you are you may be thinking:

1) Can’t wait until the new tenant pays me! I’m on the fast track!!! Someone who says this doesn’t know it yet, but they’ve got a long, hard life ahead of them.

2) I guess I’m not a entrepreneur yet, I better hire a mentor for $200 / hour. Maybe I can hire that nice man who sold me the place to show me how he was able to get so much rent!

3) I guess the market has changed, I’m so unlucky. I’d best tell everyone how the world is against me and nothing is my fault.

4) Real estate is for suckers, I’ll never rent a property again and will sell this one as cheap as possible as soon as possible.

5) I’ll look into what comparable units are renting for. Then when I’ve found out they’re renting for $1200 / month, I’ll set my rent according to the market rate and screen tenants carefully. Looking into comparable properties, it seems like I paid 50% more for the property than I should have. Since it seems very suspicious that someone would have happily been paying more than double the going rate (sadly there aren’t a whole lot of dumb, rich people running around), I may begin to wonder if the lease was set up to justify an expensive property value and sucker me into over paying. Perhaps the seller and the former tenants weren’t the perfect strangers they pretended to be.

It’s easy to read a scam over and say “how could anyone be so dumb as to fall for that”. Clearly scams exists because people DO fall for them. I came across this one here in lovely Toronto. New real estate buyers may skip the step of determining FOR THEMSELVES what market rates are for a property they’re considering buying, and trust that nice seller who was so friendly and split a beer with them.

If you’re reading this thinking “good idea, I should try that next time I’m selling!” you’re scum. Sadly, there are bad people in this world and you’re one of them.

What scams have you encountered or, if it’s not too painful to discuss, fallen for?