Real estate firms come in all shapes and sizes. It’s a growing industry with a near-constant demand, and today’s market has never been riper for an opportunity. With more than two million active real estate agents in the U.S., there are also hundreds of thousands of insurance claims at various stages of progression.
Everyone knows that insurance is a must for any business owner, but what type of coverage do you need? To determine which policies you should hold, you need to know the types of claims you’re likely to face. Here’s a rundown of the most common insurance claims realtors face.
Take Out Comprehensive Errors & Omissions (E&O) Insurance
E&O coverage is a must for any real estate agent. The easiest way to view this coverage is as the primary form of professional liability insurance.
Misrepresentation, libel, and disclaimer issues are all claims that could be made against you, which your insurance company will have to step in to pay for.
E&O policies will cover the majority of your legal fees, court costs, and any settlements levied against you. Tailored policies are essential, as is working for an insurance company that understands the challenges of your industry.
Start your search here for an insurer you can trust. Then, ask poignant questions about the coverage they provide to make sure you’re not caught unawares should you face litigation.
Most people view misrepresentation as someone intentionally telling a lie to sell a home. Misrepresentation is by far the most common claim realtors face.
However, most states don’t just classify outright lies as misrepresentations. Unintentional misrepresentation can also leave you liable. A slip of the tongue, a forgotten feature, or even a slight exaggeration could land you in court.
With U.S. businesses spending $1.2 million on fighting lawsuits annually.
States view real estate professionals as people who are in positions of trust, so anyone is free to take action against you if they feel you didn’t tell them something pertinent. Your E&O insurance will defend you against these common claims.
Misrepresenting a property by not listing its square footage correctly or failing to mention missing features can lead to disgruntled buyers filing a lawsuit. In addition, agents who sell real estate to landlords with a stated return on investment are taking a risk by not including a disclaimer.
It’s common practice for buy-to-rent property listings to come with a potential return, such as a percentage return each year. However, if you fail to include a disclaimer that the figures are projected and not a guarantee, you could find yourself facing a claim against your business.
Federal disclosure regulations are a hot topic within the real estate business. Unfortunately, they have led to an increase in closing times. Irritated buyers who lack experience under the new regulations may take legal action if you exceed your average closing times.
The closing process is enormously complex in this day and age. Document review times are increasing. It’s why closing times often exceed ten days and sometimes even longer.
As real estate professionals and buyers alike negotiate the minefield caused by these new regulations, there’s been a massive increase in the number of lawsuits filed due to closing delays.
Libel and slander are risks that many real estate professionals don’t think about. But what actually is libel under U.S. law?
These types of claims are less common than those listed above, but they’re among the most complex. According to the law, four elements must be proven in court for a libel claim to be ruled in your favor. These include:
- The defendant must have sent a defamatory message
- The material must have been published in the public arena
- The person suing needs to be identified as the person referred to in the material
- The person suing must show they have suffered a hit to their reputation
As you can see, with most of these elements being subjective, libel cases tend to drag on for months and years at a time. They are also among the most common frivolous lawsuits. However, even if you win, the price of fighting these cases is still substantial.
Your E&O coverage will defend you if you’re accused of libel and slander, but it’s best to take extra care to avoid these costly and stressful cases in the first place.
How Can Real Estate Professionals Limit Liability?
At some point, you will be sued. Unfortunately, the litigious nature of the U.S. today means facing a lawsuit, and an insurance claim is a part of doing business in today’s landscape.
However, you can take steps to limit your liability in the first place. Follow these tips for mitigating your liability:
- Disclaimers – Always use a disclaimer, no matter how redundant it may seem.
- Document Everything – You never know when you might need to defend yourself. So document everything and retain copies until the statute of limitations expires.
- Follow the Rules – Refresh yourself on the latest rules and regulations to avoid being caught out by changes impacting your business.
Overall, being prudent and implementing risk management practices can help anticipate risk areas before they happen.
Doing so will reduce the number of insurance claims you have to make and lower the chances of valuable resources diverting to fight frivolous claims against you.
Real estate firms are just as likely to be sued as any other business. Since you’re a professional in a position of responsibility, you need the right protection.
Reliable insurers are worth their weight in gold. So do your research and make sure you work with an insurer with a solid reputation for supporting their clients.
Have you taken out E&O insurance for your real estate brand yet?