A mistake on your part can cost your clients thousands of dollars plus months of stress. What can they do to recoup that cost? In many cases, the answer is to sue the real estate agent. How can you protect yourself and ensure you are covered in the event of a mistake on your part, an injury, or even an unreasonably litigious client? An Errors and Omissions (E&O) insurance policy is designed for just this type of eventuality.
Key Takeaways
- Importance of E&O Insurance: Errors and Omissions (E&O) insurance protects real estate agents from the financial fallout of lawsuits due to mistakes, injuries, or litigious clients, covering legal fees, court costs, and judgments.
- Function of E&O Insurance:
- Similar to malpractice insurance for medical professionals.
- Provides liability coverage for professional mistakes or omissions.
- Coverage varies between insurance companies; comparing costs and coverage is crucial.
- Requirements and Recommendations:
- North Carolina does not require E&O insurance for brokers.
- Some brokerages include E&O in desk fees, others require individual policies.
- Advisable to get E&O insurance to cover potential financial liabilities, even if not mandated.
- Reasons for Legal Action Against Brokers: Clients may sue for breach of contract, failure to perform fiduciary duties, improper disclosures, bad advice, or discrimination. Brokers can also be held personally liable for injuries during property tours.
- Pros and Cons of E&O Insurance:
- Pros: Provides financial protection, is relatively inexpensive, and offers peace of mind.
- Cons: Coverage and costs vary, and premiums are market-driven.
What is errors and omissions insurance?
Errors and omissions insurance is a professional liability insurance that is offered for everyone from financial and investment advisors to insurance brokers to real estate brokers and agents. E&O offers protection in the event of a lawsuit and helps to pay legal fees, court costs, and any judgment awarded. In this sense, it is similar to malpractice insurance for medical professionals.
Different insurance companies offer different policies with different degrees of coverage. If you are shopping for E&O insurance, be sure to compare both costs and coverage when making your determination.
Is E&O required to get your real estate license?
Some brokers carry individual E&O policies while others rely on their brokerage’s policy. North Carolina does not require brokers to have errors and omissions insurance.
Some brokerages will include your errors and omissions policy in your monthly desk fee, while others require you to provide proof that you have purchased E&O separately. Check with your broker to find out what their policy is in regards to proof of coverage.
Should you get errors and omissions insurance even if your state doesn’t require it?
Imagine telling a client to forego a home inspection in order to present a stronger offer. If the client subsequently determines that his or her new home is structurally unsound, it could cost tens of thousands of dollars to correct. While determining whether or not to get E&O insurance is a personal decision, it is important to understand the scope of your potential financial liability when determining whether or not to obtain coverage.
There are a variety of reasons that home buyers and sellers bring legal action against real estate brokers. These can include any of the following:
- Breach of contract
- Failure to perform fiduciary duties
- Improper disclosures
- Bad advice
- Discrimination
In addition, if someone is injured during an open house or home tour, you, not your brokerage, will be held personally liable.
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What are the pros and cons of getting this insurance?
As with any professional decision, it’s worth weighing the pros and cons to determine whether E&O insurance is right for you.
Pros
- Errors and omissions insurance provides financial protection in the event of a lawsuit or error.
- In most cases, individual coverage is relatively inexpensive to obtain.
- You’ll enjoy greater peace of mind when you know that you and your family are financially protected.
Cons
- Coverage details and costs can vary widely, so you’ll need to do your research to compare.
- You’ll have little direct control over premiums since they’re primarily market-driven and may be higher depending on your company or when you are new to the industry.
The fact is that most E&O policies are quite affordable, even for new real estate brokers starting out. The financial impact of a lawsuit, however, can be devastating. When you crunch the numbers, you’ll probably find that E&O is well worth the cost.
