The real estate industry can be a rewarding and exciting line of work. Imagine helping first time buyers secure their dream home. However, mistakes and errors are also par for the course, and insurance for real estate agents is designed to aid professionals who have the misfortune of ending up in a courtroom trying to settle a claim.
Errors and omissions insurance (E&O), as the name suggests, doesn’t cover you for claims of committing outright fraud. Typically, this policy will come in handy when a disgruntled buyer sues an agent or broker for failing to disclose a defect in a property, for misleading the purchaser about what they’re buying, or for any action construed as a breach of contract. An agent may be sued for any number of reasons, including undisclosed termite infestations, mold contamination, or even hidden water damage.
These are just some of the typical sources of litigation. Boundary disputes can certainly be another area of concern. For instance, the property could be in good shape, but the buyer alleges that the square footage of the home or surrounding property is smaller than was actually stated. Brokers and agents may also find themselves being sued for failing to disclose that a property is encumbered by a lien, which entangles the property in the previous owner’s debts.
Having coverage relieves the agent of financial responsibility
When an agent is targeted with a claim, their insurer hires an attorney in order to craft a defense strategy or negotiate a settlement. If an agent isn’t covered, they must then assume the bulk of the legal costs, which typically could wind up being in the hundreds of thousands, and up to over one million dollars.
Having a lack of information about E&O insurance, and the differences in local laws and market conditions, makes it hard to compare policies or know what to look for in the fine print. So shopping around for a policy makes a lot of sense, and acquiring an agent with experience in the E&O market is a smart decision.
Some brokers forego getting insurance for real estate agents for fear that potential plaintiffs might be lured by the thought of a pile of insurance money being recovered, but this could be an even worse mistake. Insurance is absolutely the best line of defense.