Real estate can offer highly satisfying employment and the rewards for successful estate agents are significant. Nevertheless, even the best agent can make a mistake and find themselves facing legal proceedings from a client who is unhappy that a deal has fallen through or who holds the agent responsible for some undisclosed defect in the property they have purchased. When this happens, you need to have professional liability insurance coverage in place in the form of Errors and Omissions (E&O) insurance.
Errors and Omissions insurance* can protect professional service providers from potentially devastating financial damages resulting from alleged negligence or error in the delivery of your services. In all real estate deals there will be many discussions and negotiations, and often your clients will be looking to you for guidance as to the best course of action for them. You may offer advice in good faith that might, which at some point further down the line, is proven to have been wrong, and this is where problems will arise. If you have Errors and Omissions insurance in place, your legal costs of defending any case brought against you, and the cost of any penalties imposed by the court should you lose, will be met by your insurers (subject to any deductibles and policy limits in place).
It would be nice to think that as a professional you will never make a mistake, but even the best estate agents, working in completely good faith, will make errors from time to time. An example might be that a buyer could be well advanced in discussions about purchasing a property before it is revealed that a lien is in place on the property, putting the whole sale in jeopardy. You could say that this is the seller’s problem and that they should have disclosed it to you, but the buyer may say that it was your job, as their agent and the agent promoting the sale of the property, to discover this for yourself. Should the client take legal action against you, Errors and Omissions insurance may cover your legal fees and any compensation imposed or agreed.
Another problem that can be covered by Errors and Omissions insurance is when your clients decide that you have not provided the services for which you were contracted or that you haven’t acted in their best interests. Sometimes a buyer might decide that you weren’t effective in agreeing on a good price for the property in question; they could decide to take action against you for the discrepancy between the agreed price and what they think was the right price. You could also find yourself facing legal action if there has been a miscommunication between yourself and the client, for example you might inform the client that the vendors will most likely meet the closing costs of a deal, but you’re waiting for confirmation; if later it turns out that the buyers have to pay 50% of the cost, they might sue you on the grounds that you led them to believe that this wouldn’t be the case.
Another area which could lead to clients taking out legal action against you is if they feel you have been indifferent or neglectful of their interests and have fallen below the general accepted standards of the real estate profession. Under this head you could be sued for omitting information, for example the costs of rectifying a structural problem of which you were not aware, for failing to supply your clients with all the paperwork they need, or failing to alert your clients to potential zoning issues with the property in question. In many instances you may feel that it is the seller’s negligence that is to blame in not informing you of these issues, but often the legal system will decide that the buck stops with you as the agent.
Real estate deals can be highly complex and there are numerous balls that have to be kept in the air all at the same time if you are going to keep every interested party satisfied with your work as an agent. It’s only human to occasionally take your eye off a particular ball, but the consequences of doing so can be severe or even ruinous for your business, career, and finances. If you have real estate agent Errors and Omissions insurance in place, you can protect yourself against the worst consequences of any errors that might occur in the course of your professional practice.
*As with any insurance, coverage will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained in this article is general only. Coverage for claims on the policy will be determined by the insurer, not BizInsure, and will depend on the specific facts and circumstances involved.