Professional Liability Exposures for Real Estate Brokers and Agents

Real Estate professionals are not surprised that malpractice allegations are on the rise after the recent housing crash. Brokers, title agents, appraisers, inspectors, property managers, loan brokers and anyone else involved in a property transaction has a potential for allegations of malpractice. Every step of the property transfer process is rife with chances errors and omissions.

This article will address the professional liability exposures of residential brokers and agents and how to insure an agency against those exposures. Real estate professional liability insurance pricing has been decreasing and terms have been broadening the last several years. However, most experts expect this trend to reverse shortly.

One of the easiest claims for a buyer to prove is an error or misrepresentation in the listing information. If a broker mistakes the square footage or age of the building, the buyer has a valid claim against the listing agent.

Another potential claim is a breach of fiduciary duty for not discovering and disclosing potential defects with the property. Structural issues, lead, water leaks and foundation cracks are just a few things buyers expect to have disclosures for.

With the economy down home thefts are up. Many thieves see open houses as the ideal time rob or case a home. Agents are expected to screen visitors and protect the homeowners’ assets.

Discrimination is one of the most catastrophic allegations a broker can face. Fair housing laws are the main driver of lawsuits. Agents cannot be seen of charging higher commissions to a group of people, discouraging buyers of a specific race, religion or gender from buying a house or trying to steer buyers of a specific creed towards a specific house. Property management greatly increases the risk of allegations of discrimination with brokers often stuck as the middle men between unsavory owners and potential renters.

If transactional agents manage property for their clients they should demand clear, written management guidelines to protect themselves against liability claims from both the renters and the owners. Most risk management controls for brokers is focused on the buyer, managing property should shift one’s concern to the owner.

The more an organization’s exposure extend beyond traditional residential transactions the more diligent they should be in properly protecting themselves against allegations. Standard real estate professional liability insurance policies are carefully crafted to avoid covering non-standard activities. When these exposures are presented to an underwriter they will often only extend coverage for a large premium charge. Working with an expert insurance broker can help an insured properly and affordably purchase coverage.

With all the above example allegations state regulatory commission investigations are a real issue and concern. As a licensed professional any threat to your license should be handled with the utmost care. A real estate professional liability insurance policy should provide a lawyer for the insured’s defense against any commissions investigations.

The vast majority of agents and brokers purchase errors and omissions insurance, with allegations of negligence increasing and buyers becoming savvier it is increasingly important for organizations to protect themselves with insurance.