Why Do I Need Real Estate Agents Liability Insurance?

Oct 8, 2018 · 6 minutes to read

The career path of a Real Estate agent is undoubtedly tricky in the beginning starting with passing your licensing exam to obtain the all-important license to sell. Then the real fun starts when you need to get your first clients. You’ll spend many hours showing properties to potential clients, prepare paperwork, discuss property listing details and finally work with the agent of the other party to negotiate and close the deal.

Sounds great, right?

An exciting deal can quickly turn into a nightmare scenario if one of your previous or current clients decides to take legal action against you. Particularly with the financial drain and time consumed in defending a lawsuit.

Let’s take a closer look at why as a real estate agent, you need to consider Professional Liability (PL) insurance. We’ll also touch on what this type of insurance covers and what else you can do to protect yourself from a lawsuit.

What are my risks as a Real Estate agent?

Every profession carries with it a varied degree of professional risk. It just so happens, that a Real Estate agent’s services have a higher exposure risk than many others. A Real Estate agent works with multiple customers a day, there is a lot of money on the line with each transaction, and most importantly your clients can lose that money if you make a mistake.

If a client believes that they suffered monetary loss due to your bad advice or conduct, whether real or perceived, you are likely to find yourself in the middle of a costly lawsuit. So what kind of money-losing mistakes can an agent make?

This is a short list of some of your main exposures as a Real Estate agent:

  • Violating state’s real estate regulations
  • Negligence, i.e., failure to disclose material information about the property, missing deadlines that result in financial harm to your client,
  • Failure to act in the client’s interests
  • Bank mortgage or inspection error – while you are not directly responsible for these, you are likely to be named as a co-defendant in the lawsuit

How do I protect myself and my business from a lawsuit?

Now that we discussed the risks that you face every day when it comes to a lawsuit, it’s important to talk about how you can protect yourself and your business. Two primary ways are risk management and purchasing a Professional Liability insurance policy.

Risk Management – Proactive Measure

A risk management plan helps you avoid getting sued. It’s a proactive way to keep any potential errors you might have made from happening. An effective risk management plan might include elements such as

  • Documenting all communications with a client
  • Creating clear procedures on everything from filing paperwork to how you communicate with the other agent
  • A plan on keeping up to date with fair housing laws in your state
  • Only recommending tried and trusted inspectors and appraisers. You will need a plan on vetting these individuals before you let them work with your client
  • Avoid offering advice unless you are knowledgeable about the subject matter. The worst thing you can do is to give your “best guess” and have it be wrong. Instead, refer your client to someone who can answer their question.

What does Real Estate Agent Professional Liability insurance cover?

A Professional Liability policy provides coverage against lawsuits that allege financial harm due to your professional services or following your expert advice.

Anyone that has ever been involved in a lawsuit knows the multitude of expenses that come with fighting your case in the court of law.

One of the biggest (and most crucial) covered expenses is the cost of hiring an attorney. You need to be able to afford a good attorney that specializes in cases like yours to even have a fighting chance. Another significant expense in any lawsuit is a settlement or a judgment awarded against you. Your Professional Liability policy will also extend to provide financial cover for other expenses including administrative and other legal costs.

Depending on the carrier, the policy may provide coverage for personal injury claims such as libel or slander, copyright infringement as well as coverage for temporary staff and contractors acting on your behalf.

As with all other insurance policies, this policy is not limitless. A typical limit of coverage is $1M or $2M, depending on the size of your company and your preferences. There are different levels of cover available which can provide higher levels of coverage.

Why do I need a professional liability policy?

In our highly litigious society, it’s not a question of “if” you’ll get sued. It’s a question of “when” will the lawsuit hit.

As a realtor, you work with many clients and juggle many different tasks to keep the deals running smoothly for each one. Eventually, no matter how good you are at what you do, a mistake is likely to happen. Unfortunately, when it comes to buying and selling properties, a mistake is usually a costly one.

Another reason to get an insurance policy is to defend yourself against the so-called frivolous lawsuits. Even if you did nothing wrong, nothing is stopping any individual to file a lawsuit against you. Whether or not it’s a nuisance claim, an attorney still needs to be hired and paid, legal fees are still due and so on. A Professional Liability insurance policy will respond regardless of your fault. All this can add up to hundreds of thousands of dollars. Insurance coverage is there for you to use when you need it.

Finally, it’s important to remember that if your business is not incorporated than your personal assets are at risk. If you do not have an insurance policy nor the funds in your business to defend your case, you can lose your home, your personal money, your cars, and other assets. Your wages can also be garnished for the foreseeable future. Is this something you could really afford let happen?


With the costs to successfully defend a lawsuit on the rise, a Professional Liability insurance policy is a critical component of your overall risk management plan.

Just as you protect yourself and your vehicle by purchasing Auto insurance, a Professional Liability insurance protects you and your business and gives peace of mind to your customers.

Adding an extra expense to your balance sheet sure seems daunting. However, it’s important to consider not the question of “how much will the insurance cost me?” but rather the question of “How much will it cost not to have the insurance?”.

Saving a few hundred dollars a month now, might mean having to come up with thousands of dollars out of pocket if you are sued.

BizInsure can help you find the right coverage for you. Receive instant quotes from our leading partners for Real Estate Agent Professional Liability insurance.

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