How real estate insurance can help protect you and your business
Real estate agents often combine several types of business insurance to help protect themselves and their business, including:
1. Errors and Omissions (E&O) insurance
E&O insurance helps protect against claims of negligence or inadequate work. Some states require you to have this type of coverage to get your real estate agent license, and many brokerages will require you to have it, too. Sometimes, E&O is called professional liability insurance.
Having real estate errors and omissions insurance can help you defend yourself in case you’re accused of making a mistake that causes someone to lose money. If a client alleges that you provided misleading information or failed to disclose important details, E&O insurance could help cover legal fees, defense costs and settlements.
Learn more about how E&O insurance protects real estate agents.
2. General Liability insurance
General liability coverage can help protect against claims of bodily injury or property damage that may occur during business operations. For instance, if a client falls during a property showing and needs medical care, a general liability policy could help cover medical expenses, legal defense costs and more.
3. Workers’ Compensation insurance
If you hire employees or independent contractors, workers’ compensation insurance is required in most states. This insurance helps cover medical expenses and lost wages if an employee is injured while working.
4. Commercial Auto insurance
Since real estate agents spend significant time on the road, a commercial auto insurance policy could help cover vehicle accidents and damages that occur while driving for work-related tasks, such as property showings and client meetings.
Personal auto doesn’t usually cover accidents that happen while you’re driving for business purposes. Having commercial auto can help fill the coverage gap.
5 most common examples of real estate agent insurance claims (and how to mitigate your risk)
Real estate has many legal complexities and large transactions to navigate. And if things go sideways, you and your real estate business could be at risk. Follow these tips to help avoid some of these most common professional errors before they happen.
1. Misrepresentation in real estate
Misrepresentation is a legal term for false or misleading information. In real estate, it often involves providing inaccurate details about a property, which can result in legal and financial consequences.
When purchasing property, buyers want to know what they’re getting into. If you don’t provide complete and accurate information, they can’t make an informed decision about a property.
Misrepresentation can impact a client’s decision to buy. For example, telling a client the house they’re interested in is 2,500 square feet when it’s 2,200 square feet. Or that the property line runs along the back of the flower beds when it actually runs along the front.
Where it gets tricky is that misrepresentation is subjective; sellers, real estate brokers and realtors use hyperbole or exaggeration all the time to close a deal. However, misrepresentation claims focus on facts, intent and the approximation of correctness.
How to lower your risk
- Skip the hard sell. Make sure property descriptions are accurate and don’t exaggerate the features and benefits of a specific property.
- Conduct thorough research. Always verify the accuracy of information regarding properties. This includes details about the property’s condition, zoning laws, and any liens or encumbrances.
- Stay updated on regulations. Keep up with local real estate laws and regulations. Understanding your legal obligations can help you avoid unintentional misrepresentations.
- Encourage professional inspections. Advise clients to conduct professional inspections before closing a sale. This can help identify potential issues and prevent misrepresentation claims related to the property’s condition.
2. Failure to disclose information about property
Fun fact: Did you know that four states in the U.S. require sellers to disclose a property’s haunted past? Real estate agents in Massachusetts, Minnesota, New Jersey and New York must disclose a property’s haunted reputation.
While you’re unlikely to come across this scenario, as a real estate agent, you must disclose what you know about the property to your client — even if it means your clients decide not to make an offer. If you pulled a property history report or have previous experience with the property and know the house has issues that may possibly affect the property’s value or desirability, you should let them know.
You are also responsible for ensuring inspections that might reveal this type of information are completed. When you get the reports back, it’s important to review them with your clients to make sure they’re aware of any potential issues.
How to lower your risk
- Be transparent. Tell prospective buyers about property defects that would affect the value of the property or their decision to buy.
- Provide clear disclosures. Disclose background information you have about a property, whether you obtained it from a property history report or previous experience with the property.
- Share sources. If you give your clients information you obtained from a third party, disclose the source of the information.
- Disclose results of previous inspections of the property. Document visual inspections and your advice to the buyer or seller about those inspections, so they can’t say you didn’t tell them.
3. Negligence in real estate
There’s a lot of money at stake when someone buys or sells a property. If you don’t do everything you can to help your clients get the best possible deal, they could lose out on thousands or even tens of thousands of dollars.
For instance, say you miss important deadlines in a real estate transaction. Suppose a buyer is eager to purchase a home and you’re responsible for submitting the necessary documents to secure a mortgage approval by a specific date.
If you fail to submit the documents on time, the buyer might miss the mortgage approval deadline, leading to the loss of favorable interest rates or even the cancellation of the sale. As a result, the buyer could incur additional costs, such as higher fees for a rushed mortgage application or even penalties from the seller for not closing on time.
In this scenario, your negligence in managing deadlines can result in significant financial consequences for the client and they could sue you to recoup their losses.
How to lower your risk
- Build trusted relationships. Counsel your clients on issues that may affect the value of a property so that they can make an offer accordingly.
- Document everything. Keep accurate records of your contact with clients including communications, property disclosures and agreements. Written documentation helps clarify any misunderstandings and provides evidence if disputes arise.
- Guide sellers. Make sure sellers understand disclosure requirements and sign all disclosure forms.
- Check signatures. Get the proper signatures on all required paperwork.
- Act in your client’s best interest. Comply with all contractual obligations and conduct professional services in a timely manner.
4. Slip-and-fall accidents on site
Slips and falls don’t just happen on wet floors. When you take someone to see a property or invite others to an open house, you may be responsible for their safety, so it’s important that everyone doesn’t walk into a dangerous situation.
How to lower your risk
- Conduct safety assessments. Before showing a property, perform a quick safety assessment. Look for hazards such as loose floorboards, clutter or inadequate lighting. Address any issues or alert clients to potential dangers.
- Make a plan for pets. If you’re showing a house that has a dog or cat, make sure it’s in a safe place to avoid potential escapes or aggressive behavior.
- Vet unoccupied commercial property. If you’re taking a client to see a commercial property that’s been unoccupied, make sure it’s structurally sound and safe to bring a client first.
- Use caution in unfamiliar areas. When visiting a property in an unfamiliar neighborhood, be mindful of your surroundings. Avoid distractions, stay alert, and ensure you’re aware of any potential risks such as aggressive animals or unsafe conditions.
- Have emergency contacts ready. Ensure you have emergency contact numbers readily available, including local emergency services and a trusted colleague. In case of an injury, you can quickly reach out for help.
5. Auto accidents
In 2022, there were just under 6 million police-reported automobile accidents. Any time you’re on the road, you could get in an accident, including when you use your car to get to and from showings. To reduce your risk, engage in safe driving practices.
How to lower your risk
- Wear a seatbelt.
- Obey all traffic signals.
- Put down the phone. You might feel compelled to send a quick text to a client or read an email, but wait until you’ve stopped the car. There were 289,310 injuries involving distracted drivers in 2022.
- Leave plenty of time between appointments. You don’t want to feel like you have to rush to avoid being late.
- Don’t speed. Maintain a safe distance from the car in front of you.
- Practice safe passing. Don’t pass vehicles in no-passing zones.
- Use turn signals. Always use your signal when you change lanes or turn.
