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Real Estate Agent E&O Insurance

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What is Real Estate Agent E&O Insurance?

As a real estate professional, you may be committed to your clients but their commitment to you may have limits. Real Estate Agent E&O Insurance (also known as professional liability insurance) helps protect real estate agents, brokers, and property managers from professional risks when mistakes happen. No matter the size of your business, client expectations are increasing and lawsuits are becoming more common.

Five reasons real estate professionals need E&O Insurance

Still not sure you need to buy real estate agent professional liability insurance? Let us provide you with just five quick reasons your real estate business needs coverage:

  • Increasingly clients are requiring the real estate professionals they hire to carry errors and omissions (E&O) insurance. You may risk losing opportunities without coverage.
  • Contracts only go so far in protecting your agency from potential lawsuits, as contract provisions are routinely challenged in court and at a considerable expense.
  • Clients do not hesitate to take legal action if they feel the professional services performed failed to meet their expectations.
  • Defense costs, even in frivolous cases, can be costly.
  • A quality professional liability insurance program can be both cost-effective and help protect your business and financial security.

Uncertain of all the risks associated with running a successful real estate brokerage, check out our free real estate agent risk summary.

What does Real Estate Agent E&O Insurance cover?

As a real estate professional, you have a tremendous responsibility. Your clients trust you to give them accurate advice and information about their real estate transactions. If you miss an important detail, it can result in financial damage, and ultimately a lawsuit against your real estate agency or brokerage.

Real Estate Agent E&O insurance can help cover claims of:

  • Negligence

  • Misrepresentation

  • Inaccurate advice

  • Errors

  • Omissions

If a client sues your real estate agency, E&O coverage can help pay for legal expenses, including:

  • Attorney fees

  • Court costs

  • Administrative costs

  • Settlements & judgements

You can also increase your real estate E&O insurance coverage if you buy an extended reporting period (ERP) for your policy. This means you’ll have more time to report a claim after your policy expires. Not sure you have the right real estate agent E&O insurance, check out our checklist.

Real Estate E&O Insurance claims examples

We don’t intend for professional liability claims to happen, but they do. This is why we have real estate agent E&O insurance. Here are some examples of professional liability claims where errors and omissions insurance can help real estate professionals:
  • Your agency or brokerage hosted an open house for a client but did not mention a structural flaw in the home.
  • An employee or agent in your office describes a property incorrectly in a home listing.
  • An agent in your office provides incorrect legal advice to a client when they’re buying a home.

Let’s see some real-life examples:

Claim 1: Real Estate Brokerage
Facts:A real estate agent, acting as listing agent and broker for the sale of residential property is sued over disclosure. Upon purchase of the property, the buyer discovered cracks in the foundation. The buyer alleged they were known by the seller and the client but not disclosed to the buyer.
Action:The buyer alleged deceptive trade practices, fraud, and gross negligence. They claimed they suffered damages for the costs of repair, loss of value, and costs of an alternative living arrangement.
Outcome:This claim settled for $359K in indemnity and had defense costs exceeding $120K.
Claim 2: Property Management
Facts:A real estate agent is acting as a property manager for a condominium association.
Action:The homeowners association alleged there was a breach of contract and fiduciary duty due to defects in the roof, paint, stucco, and windows with a settlement demand of $80K.
Outcome:This claim was settled for $30K. The defense costs exceeded $30K.
Claim 3: Commercial Leasing
Facts:A real estate agent is representing a lessee of a warehouse. Lessor sued the lessee for failing to pay a security deposit and rent under the lease. Lessee then sued the real estate agent for failure to negotiate the correct terms of the lease.
Action:Allegation of negligence by the real estate agent in the execution of the lease agreement.
Outcome:This claim settled for $22K. The defense expenses were $70K.
Claim 4: Real Estate Brokerage
Facts:A real estate agent acted as a listing agent for a condominium. Buyers alleged age discrimination in the brokering of the condo.
Action:Buyers alleged violation of the Fair Housing Discrimination Act.
Outcome:This claim settled for $7.5K. The defense costs are estimated at $15K.

Should you buy an individual real estate agent E&O insurance policy?

If you work for a larger firm or brokerage, you may be considering if you should buy an individual E&O insurance policy. Here are some reasons to consider your own protection:

  • Put yourself first: Your firm’s E&O insurance is likely shared with all the agents. Coverage could be exhausted, leaving you to cover expenses on your own.

  • Open houses & showing: Does your firm’s policy cover your showings or open houses? Maybe not. Your own policy will cover your common activities.

  • Consistency in coverage: If you purchase an individual policy, you can assure that your transactions are covered regardless if you change brokerages, or if the firm you work with becomes insolvent.

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