Real Estate Errors and Omissions Insurance
Short of marriage or having children, purchasing a home is one of the most emotional decisions families can make. As the real estate broker of that decision, a realtor’s relationship with the buyer can be a very personal one, which can lead to deep gratitude – or to bitter disputes.
Just as home buyers insure their purchase, real estate agents need to safeguard the role they play in the transaction. Real Estate Errors and Omissions (E&O) coverage protects licensed real estate agents and brokers in case they are sued for their performance.
Risks All Realtors Face
People tend to think of insurance in terms of property and casualty, which involve risks and damages that can be easily assessed and valued by a claims adjuster. E&O claims are more obscure and typically involve courts (and, of course, lawyers), so claims costs and damages tend to be higher.
The E&O risks of real estate agents are as diverse as the homes and the buyers and sellers with whom they do business. One of the most common risks is non-disclosure, which can range from defects or changes to the house such as mold or structural issues, to making exaggerated claims or withholding a relationship with the property or its owners. Agents can also be sued for discrimination if a buyer believes they were unsuitable for certain neighborhoods.
An agent can be held liable for issues he or she was not even unaware of, according to Rochelle Elliott, who leads the Real Estate Center of Excellence at Burns & Wilcox. Elliott recalls a claim based on a “gentleman’s agreement” about property lines between a home’s former owner and then neighbor. When the homeowner sold his home, he did not inform his agent about the “agreement.” When a new set of neighbors moved in next door and discovered their property had been encroached upon for years, they sued the agent for failing to properly investigate the property lines with the surveyor or county.
Protecting Your Performance
E&O insurance covers agent claims expenses (the cost of litigation) and indemnity for real estate firms and agents. While policies are usually written for firms and cover the realty company and any agents and employees who work there (including agents who are contracted independently), Elliott says some states mandate that individual agents have their own E&O policies. However, in the majority of cases the firm will be on the line as well.
Small, independent realtors typically have a lower commission income and fewer transactions, which leads to decreased risk exposure. A more focused portfolio can help brokers and agents be more attuned to the risks and potential for errors, according to Elliott. Small agencies can access specially designed E&O packages through Burns & Wilcox at a more affordable rate and tailor made policies for mid- and large-size agencies is a Burns & Wilcox specialty.
How can insurance brokers and agents, big and small, help realtors avoid errors and disputes? Elliott says the key is to educate yourself, then to educate your clients.
Insurance brokers and agents should be confident that they fully understand the needs and wants of their clients – then be upfront about what they know, and what they don’t. Being transparent about what you know and don’t know is less risky than responding carelessly.
Realtors need to understand their own risks. Developing an active Risk Management plan is an easy way to help minimize exposures. Insurance brokers who understand the coverages can help their clients develop these tools.
After all, “As emotional as buying a home can be,” Elliott says, “it is still a transaction – and it’s important that everyone is clear about what their role entails.”
As an expert resource, Burns & Wilcox helps insurance brokers and agents gain the necessary knowledge and education and develop the policy coverage’s needed for a Real Estate Agent/Broker to make the best decision possible.
For more information visit burnsandwilcox.com