Real estate agents provide an important service to homebuyers and sellers alike. They help those who are unfamiliar with the ins and outs of real estate transactions to become first-time homeowners; they assist those who are looking to upgrade to their dream houses, and so much more. Unfortunately, as with any professional position, working in this field is not without its risks. Real estate agents can be sued for a number of reasons, so it is important that they protect their financial interests with real estate errors and omissions insurance. An independent insurance agent in the Trusted Choice® network can help you find the right coverage so that you're protected in case of a lawsuit.
Real Estate Industry Facts From the National Association of Realtors®
- There are currently about 2 million licensed real estate agents operating in the United States.
- As of 2013, 65.2 percent of U.S. households owned the homes in which they lived.
- In 2014, approximately 4.9 million existing homes and 437,000 newly built home were sold in the U.S.
What Is Real Estate Agent Errors & Omissions Insurance?
Errors and omissions insurance covers all kinds of professionals against lawsuits stemming from professional errors that cost others money, result in injuries other than bodily injuries or hurt a business. If a third-party faces damages because of something that this professional was supposed to do but didn’t or because of something the professional did but shouldn’t have, errors and omissions insurance provides coverage.
This is similar to a general liability insurance policy but differs in that it covers damages caused by professional missteps rather than resulting in bodily injuries or property damage. If you are an employee of a real estate agency, they may require you to purchase this coverage or they may cover you under their master policy. If you are an independent contractor, this coverage is not required, but it is highly recommended, as it can spare you from large financial losses and legal trouble.
Insurance companies have designed a number of different kinds of errors and omissions policies, each geared toward a different profession. For example, medical malpractice insurance is a type of errors and omissions insurance made specifically for doctors. As a real estate agent, you want to look for a real estate errors and omissions policy.
What Can Real Estate Errors & Omissions Insurance Cover?
People can sue real estate agents for just about anything, regardless of whether the agent is actually at fault. Real estate errors and omissions insurance covers your legal defense, which can be quite costly, as well as other related expenses and damages. Some situations this insurance can cover include the following:
- Failure to act in a timely manner: As a real estate agent, failure to act can result in lost opportunities for both buyers and sellers. Sometimes, this can result in a lawsuit.
- Failure to exercise due diligence in research: New homeowners may discover that their new house is located near a toxic waste dump or that the crime rate in their new neighborhood is astronomical. If they have regrets about their purchase, they might blame you for not discovering and reporting this information to them before they made an offer on the house.
- Failure to disclose: If a house has lead paint, asbestos or a major mold problem and this information was not disclosed to the buyers, the real estate agents who handled the transaction may be blamed. Of course, a lot of this would likely turn up in a home inspection, but agents have a duty to inform potential buyers of the possibility of contaminants in the house. This becomes even more serious if the agent is aware of the problem but hides it from potential buyers.
- Lockbox and open house property damage: Sellers entrust you with their property while you are showing their houses to potential buyers. Failure to properly secure the lockbox in which the house key is located can result in a break-in and robbery. Similarly, if you do not maintain order and keep an eye on visitors during an open house, personal property may be damaged or stolen. In each case, the seller may sue you for damages, particularly if the incident results in a lost or delayed sale of their property.
- Failure to adhere to fair housing practices: If house hunters feel that you are engaging in discriminatory practices, such as avoiding certain neighborhoods or houses because of the buyers' race, nationality, religion or sexual orientation, they may sue you for failure to adhere to fair housing practices.
- Failure to secure electronic data: Your clients entrust you with a lot of personal and financial data. If you store this data electronically, such as on a laptop or tablet, and that device is hacked into or stolen, you put your clients at risk for identity theft and robbery. They can sue you for actual or potential damages.
- Subpoena coverage: If you are subpoenaed for a court case in which you are not the defendant, this insurance covers related expenses and provides you with a daily stipend while you are unable to work.
Bear in mind that this coverage is claims-based, meaning that the insurance company you have in the year that a lawsuit is brought against you is the company that pays. Therefore, if you get sued for a mistake you made two years ago, but have since changed insurance companies, your current company will cover you.
Most policies offer extended reporting periods so that you can remain covered for a sufficient period of time after you retire or stop working in the real estate industry. Be sure to discuss extended reporting periods with your Trusted Choice agent because this is not a standard type of coverage and it is often misunderstood by consumers.
Get Help Finding a Good Real Estate Agent Errors & Omissions Policy
When you are ready to purchase an errors and omissions insurance policy, be sure to ask a local independent agent in the Trusted Choice network for assistance. These agents can help you understand the various aspects of your coverage options as well as obtain a variety of quotes from competing insurance companies. Find a local Trusted Choice agent to learn more, and start comparing real estate errors and omissions insurance quotes.