Real Estate E&O Insurance: Liability, Programs, Costs & More
June 23, 2021
Most real estate owners have steep financial commitments and often significant emotional attachments to their property. These are conditions that can quickly put real estate agents in the crosshairs of volatile clients distressed at how deals were handled or vigorously contesting agreements and transactions involving their property. Such potential actions support the need for Real Estate E&O Insurance programs.
Lawsuits from buyers and sellers accusing a real estate agent of malpractice or faulty work are severe threats to the agent's career. A Real Estate E&O Insurance program helps pay for legal defense and settlement costs when clients sue them for their losses.
What is Real Estate E&O Insurance & Who Needs It?
Real Estate Errors and Omissions (E&O) Insurance provides professional liability insurance for real estate agents. It is a safeguard against losses stemming from claims the agent's work was mistaken, late, or never produced. Since state laws require agents to acquire E&O insurance before issuing a license to real estate agents, obtaining real estate liability insurance is not optional. Therefore, Real Estate E&O risk management is a top concern for agents involved in selling commercial and residential real estate properties.
What Does Real Estate E&O Cover?
Typically, Real Estate E&O Insurance policies provide coverage to agents for the costs related to their legal defense and any resulting settlement from the proceeding up to the limits set in the policy. Often, the coverage includes paying to defend agents regardless of the claim's validity, i.e., whether a lawsuit against the agent is frivolous or not. The headings below describe real estate errors and omissions claims examples.
Accusations of Negligence
Negligence is considered a breach of duty even though the agent had no intentions to cause harm. A failure to adhere to professional standards or negligence in disclosing property conditions are among the most frequent claims in real estate transactions. Hiring an appraiser or inspector does not relieve agents from the risk of failing to supply information the buyer deemed necessary before committing to a purchase. For example, after the closing, a buyer sues the agent after finding black mold, termites, structural damage, or water in the basement.
Buyers can also claim negligence for breach of fiduciary duty, dual agency, or violations of the Real Estate Settlement Procedures Act (RESPA). Additionally, Real Estate E&O insurance programs protect agents from personal liability not shielded by an LLC or Corporation.
Mistakes are an inevitable part of doing business. The complexities of real estate transactions with many participants increase the odds of a mistake that causes a buyer to suffer a loss and then file a lawsuit blaming the agent.
Failure to Deliver Promised Services
Any undelivered service promised by an agent can lead to claims against them. For example, an agent fails to file paperwork required to complete a transaction or files after a contractual deadline resulting in a loss for their client. Or, a client sues their agent for failing to provide guaranteed repairs or other services that led to their financial harm.
Real estate agents are considered advisers by their clients. Therefore, they can sue in cases where the advice they receive does not meet expectations. It does not matter whether the information was inaccurate or inadvertent with good intent. Providing advice outside of the scope of the agent's expertise is a primary cause for claims of inaccurate advice.
Intentional misrepresentation is considered fraud and not covered by a Real Estate E&O liability insurance policy. Innocent misrepresentation claims can arise in negligent or innocent misrepresentation, such as a property's correct square footage. Examples of other claims of misrepresentation include exaggeration of the features of a property or using altered photos obtained from third parties, such as online or MLS listings, without checking their accuracy or verifying information supplied by the owner.
Additional Policies Needed by Real Estate Agents
Real Estate E&O Insurance Programs encompass more than Real Estate E&O liability insurance. Professional agents need comprehensive coverage to protect their livelihoods against many common risks facing businesses large and small. The listings below provide details on coverage virtually all real estate agents need.
General liability covers the liability risks that threaten every real estate agent, including bodily injuries to clients and visitors, property damage to the client's property, personal and advertising injuries, medical payments, damage to property rented by the agent. Therefore, a liability policy is often required and always recommended for real estate agents and brokers, depending on their circumstances.
Depending on how an agent uses a personally owned vehicle will determine if commercial auto insurance is necessary. Usually, personal auto policies exclude vehicles used primarily for "regular business use." It depends on the policy language because many have restrictions on using a personal car for work. When a vehicle is driven more for business purposes than personal use, real estate agents need business auto insurance. All company-owned vehicles require commercial auto insurance with policy limits that meet minimum statutory regulations. A typical commercial auto policy will include these and other optional coverages:
Uninsured and underinsured motorist
A Business Owners Policy IBOP) is advantageous for agents because it combines general liability with commercial property insurance and possibly other coverages, depending on how the carrier structures the BOP, into a single policy. The effect is to lower the premium by bundling coverages. Coverage for additional properties like garages, storage sheds, and rented units are optional endorsements to a BOP.
Real Estate E&O Insurance Costs (and what factors affect the price)
Not all policies are the same, meaning agents must price comparisons carefully to understand what is and what is not included in the policy. On average, Real Estate E&O coverage will cost an agent between $360 - $1,000 per year. Location, claims experiences, and other factors can affect the price of a Real Estate E&O Insurance Program.
A standard General Liability insurance policy with $1,000,000/$2,000,000 limits runs $30 to $40 per month per agent with factors including experience, sales, claims history, location, and more affecting the cost.
Best Real Estate E&O Insurance Programs
Not all programs are equal, so it's essential to research the best Real Estate E&O liability insurance program for real estate brokers and agents. In your review, it's helpful to compare price, customer service, carrier and brokerage reputation, responsiveness, and convenience. A standard errors and omissions policy usually offers $1,000,000 in coverage per claim. Higher limits are available and recommended when warranted.
To begin your research, tap into the Program Business Market Directory. There you find listings to help you narrow your search. An exceptional choice is PL Risk. PL Risk Advisors is one of the nation's largest independent firms writing Commercial Real Estate E&O insurance, which gives it a unique perspective on this risk. Its Real Estate Errors and Omissions (E&O) insurance programs are specifically tailored to each client. In addition, its E&O program offers coverage for legal fees and settlements due to claims arising out of allegations of negligence or oversight in the performance of the work provided.
Revenue at least $1M
Three or More Agents
Available in all 50 states
Claims or No Claims
Limits up to $10M
Contingent Bodily Injury/Property Damage
First Dollar Defense Option
Pollution & Discrimination
Large Residential Firms
PL Risk serves the E&O needs of a broad spectrum of real estate industry professionals, including:
Commercial Real Estate Agents & Brokers
Residential Real Estate Agents & Brokers
Mortgage Bankers & Brokers
Clients turn to PL Risk for risk management solutions and industry-specific coverage that address:
Environmental Hazards and Pollution
Mold Spores and Fungus Growth
Unlike most Real Estate E&O insurance programs, PL Risk provides coverage for real estate services not covered by many policies, such as: