Realtor & Real Estate Agent Risk
As service industry professionals, realtors and real estate agents do take on a notable amount of risk. Real estate, in particular, can be a complicated field. This is why realtors and real estate agents must pass somewhat rigorous tests and acquire the right licenses to operate in each state. The risks that come with the career primarily involve “how” and “why” decisions. At times, customers may question certain choices or a real estate agent may make a mistake here or there which causes a delay in the application and approval process for a customer.
Insurance for Realtors & Real Estate Agents
Real estate agents and realtors commonly rely on a variety of different insurance products to help mitigate risks. Products can include, but are not limited to:
- Business Owner’s Policy - A Business Owners's Policy (BOP) combines elements of property, general liability, and business interruption coverage to protect your business from a variety of common risks. Whether your office is damaged by a fire or a potential client slips and harms themselves in one of your properties, a BOP will help limit your liability and keep business running smoothly.
- Workers Compensation - Workers Compensation coverage is required in most states once a business reaches a certain number of employees (this minimum varies by state, so it's important to check local laws or speak with a professional).
- Errors & Omissions Insurance - Having Errors and Omissions Insurance is of particular importance for realtors and real estate agents. Often called E&O or Professional Liability, this insurance is designed to provide liability coverage for the one area of risk that is most common for service industry professionals. Most risks associated with the industry relate to decisions you make as a realtor or real estate agent within the realm of conducting business. E&O insurance covers the vast majority of errors or misjudgements on your part that may occur.
Common Real Estate E&O Scenarios
Although most realtors and real estate agents shoot for precision when conducting business, there are times when either oversights or mistakes can occur. Typically, these are not purposeful. In many cases, an agent may simply make an error due to misinformation or miscommunication. Nevertheless, once the error is made, if there is any damage or fallout to the client, the realtor or real estate agent may be held at fault.
Many common real estate agent and realtor mistakes occur during the document filing and drafting of paperwork. Some of this relates to many real estate agencies expanding their businesses into new fields. This includes construction management, an area where many agents have less experience. As a result, agents and realtors may find themselves making errors due to a lack of proper procedures.
A sale gone wrong, or a purchase that just does not get through for a client, may also result in a lawsuit. This is particularly true if a realtor or an agent’s promise to buy or sell a property does not occur as planned. If the promise is in writing, the agent or realtor may likely find themselves on the receiving end of a lawsuit from the client, particularly if the lack of success was due to some mistake or delay from the agent in the process.
Realtors who perform property management also face errors and omissions liability risks. While other forms of insurance are also common for property managers, E&O will cover the type of risks involved with the service-side of property management, such as proper filings, or even when it comes to taking care of known or unknown safety issues on the property. A home that needed new roofing, for example, may develop a leak that becomes costly to the owner. If the property manager failed to take care of the issue because of a lack of proper record keeping, this would be considered an issue that can fall under E&O liability coverage.
How to Mitigate Risks as a Realtor or Real Estate Agent
Aside from purchasing E&O Insurance, there are a number of common ways a real estate agent, realtor or agency can mitigate risks to avoid liability claims and lawsuits:
Providing Compliance Manuals to Agents
Compliance manuals are easy to locate, with many realtor and real estate organizations providing these documents for free.
Offering Home Warranties
Offering home warranties can place some of the risks onto the warranty company. Helping clients purchase a home warranty will help put some undiscovered issues with the home into the hands of the home warranty company, not the real estate agent or realtor. Unfortunately, some homeowners will hold the real estate agent or realtor accountable for undiscovered issues. A home warranty will help mitigate that risk by providing the homeowner with another place to turn when those issues arise.
Using Standardized Realtor Forms
Standardized forms are an easy fix as well. As many errors and omissions in the industry arise from improper paperwork, utilizing standardized forms will help lower the risk that a form may not meet the proper legal requirements or that any information may be missing.
Realtors and real estate agents who perform duties outside of the norm, such as property management, may have additional risk exposures. Property managers, for example, may take on risks within the properties they manage and within their own physical business office. General Liability Insurance or a Business Owners Policy helps cover the risk of personal or bodily injuries that can occur when customers come through your properties.
Realtors who have extended their business operations into construction and construction management will find General Liability policies and Workers Compensation uniquely important as well. In those cases, the risk of injuries for both customers and workers increases, making those policies far more necessary.