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Real estate agents and brokers often assume that every sale will unfold like clockwork and that all their buyers and sellers will be reasonable. Sadly, reality can quickly prove them wrong. A property’s curb appeal might mask structural problems inside. Lead paint, a septic tank on its last legs, a leaking roof, a termite infestation, a radon or asbestos problem... all could be lurking behind closed doors, ready to confound the sale or generate legal disputes afterwards. Similarly, the people you deal with may initially seem nice. But when something goes awry during the purchase process, they may look to you for financial relief.
Here are some common mistakes that can lead to Errors and Omissions claims against you:
The above points are just for starters. In fact, there are countless other ways you can get embroiled in a legal dispute.
For example, consider these five hypothetical scenarios:
In short, the combination of a flawed property with a litigious client can spark a perfect storm of legal woes. Worse, if you’re sued and lose in court, you might be liable for a financial settlement that consumes a significant portion (or all) of your assets, both business and personal. Did you envision such risks when you decided to become a real estate agent? If not, what should you do about them now?
The good news is you’re not alone. By purchasing a Real Estate Agent and Broker Errors & Omissions insurance policy, you can protect your finances against covered legal exposures, reducing the odds that an angry client will put your assets at risk. Most importantly, having real estate E&O insurance in place means you will likely avoid being forced out of business or into bankruptcy because you made a mistake. You will be able to make good on your errors and omissions or get nuisance lawsuits dismissed with the help of an insurer-provided attorney.
So what is real estate E&O insurance? It is a type of professional liability insurance that turns the uncertainty of doing business today into a known and predictable expense. In other words, when you purchase E and O insurance, you convert a potentially large, yet unknown, loss into a much smaller outlay for which you can budget — an E&O insurance premium. By neutralizing the large risk, you’re able to operate with less worry and stress. In the unfortunate event a client files a claim against you — and you lose — your errors and omissions insurance policy will protect against covered judgments, settlements, attorney fees and court costs. In effect, your policy will become your financial safety net during nasty client disputes.
How does E&O insurance work?
When you purchase real estate E&O insurance, you enter into an agreement with an insurer for it to pay for your loses up to your policy limits as long as you pay your premiums.
Under this arrangement, the insurer agrees to:
Now, under the terms of your policy, the insurer isn’t obligated to pay for your losses in every instance. It can exclude those that fall into certain categories such as:
Despite the benefits of real estate E&O insurance, some agents decide not to purchase this essential coverage. Of course, those who do business in the dozen or so states that require E&O insurance must have their own errors & omissions insurance. But those in the remaining states often rationalize not being insured in various ways. For example:
Of course, when you think about these excuses, it becomes obvious they rest on a foundation of sand. For example, even the most experienced real estate agent will occasionally miss a defect and misrepresent the condition of a home. And agents with excellent people skills can still find themselves dealing with clients they can never satisfy.
For these and other reasons, having e and o insurance is highly advisable in today’s hazardous marketplace. If you want to do business without exposing yourself to extreme risk, make sure to buy your own E&O insurance.
Finally, remember that buying E&O insurance isn’t just about reducing the financial impact of getting sued. It’s also about conveying a positive message about your business to local prospects. If you want to be seen as a responsible, ethical real estate agent, then it’s important to have your own E&O insurance. It shows people you are a true professional who stands behind your actions, both in good times and in bad.
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