Is E&O insurance for real estate agents really necessary? The short answer, yes, as a real estate agent, you need E&O (errors and omissions) insurance.
While the answer may be simple, there’s more to it than just getting errors and omissions insurance as a real estate agent. Let’s look closer at what this type of insurance is, the coverage brokers provide, and how you can protect yourself.
What is E&O Insurance?
E&O Insurance will pay a judgment or settlement against you, as a real estate agent, up to the limits of liability in your policy. The coverage helps to protect real estate agents if a lawsuit is filed due to the work they did as a real estate professional.
Basically, errors and omissions insurance is professional liability insurance for real estate agents. If a claim is made by a client due to negligent actions or inadequate work, this insurance will cover the court costs and the settlement amount, up to the limits of the policy.
Understanding E&O Insurance for Real Estate Agents
As a real estate agent, it’s important to understand how E&O insurance works. Most policies provide liability coverage with some limits and exclusions. Your policy may also have a deductible, which you will have to cover out-of-pocket. In fact, some E&O insurance policies will come with two deductibles; one for court costs and one for damages.
While some insurance companies offer E&O insurance packages with no deductible, this type of policy may come with specific stipulations. Often, the agent will need to maintain a complete file with all the necessary documents required by law and by the brokerage. If the agent cannot show this complete package from the closing, a zero deductible E&O insurance policy could backfire on them.
It’s important to fully understand your E&O insurance policy, whether you obtain it yourself or it’s provided by your broker. It’s common for E&O policies to exclude coverage for criminal acts or dishonest acts by the agent. If an agent causes bodily harm or deal to someone, typically, claims will be excluded from the policy. It’s also possible the policy may have exclusions for claims made from damage caused by the agent to someone’s property. Often, a general liability insurance policy is required to have coverage against property damage.
Make sure you fully understand the E&O insurance you have and how it will cover you. If you do end up in a situation where you need this insurance, it’s better to know what to expect than to be blindsided.
How Coverage From a Broker Works
It’s not uncommon to get E&O insurance coverage from your broker. If they don’t provide it, you will need to obtain E&O insurance for real estate agents to ensure you’re fully covered. When you choose a real estate broker to work for, you should understand how E&O insurance will cover you and how you will pay for it.
Many brokers charge a per-transaction fee for errors and omissions insurance, even though they pay a yearly premium for the insurance. Make sure you understand all the fees you will be paying with your broker before you choose to work for them.
When working as an agent for Elite Agents, all of your transactions will have E&O coverage and all we charge is $100/year.
Protection Beyond E&O Insurance for Real Estate Agents
While E&O insurance will help protect you, there are some things you can do to ensure you’re protected even when working with a broker.
When a client decides to file a lawsuit, they will likely file the suit against the agent and the brokerage. Keeping accurate transaction records and records of interactions with the client will help protect you throughout a lawsuit. Both of our monthly agent sponsorship plans include access to a transaction management system where all transaction documents will be stored. An electronic or handwritten journal with client names, dates for interactions, and the topics of conversation can be very useful as well.
Make sure to note important details when talking in person or on the phone with clients, such as the home inspectors used, any home warranty recommendations, statements from lenders, and client responses to documents.
It’s also a good idea to have a client sign documents stating you made specific recommendations and the client either agreed to them or didn’t agree. For example, if a buyer declines a home inspection, make sure you get a signed waiver stating they declined. If you don’t and the A/C breaks down the day they move in, they may decide to file a suit.
While E&O insurance for real estate agents is vital and will help protect you, it’s important to protect yourself. Document as many facts as possible and always get everything in writing and signed. The insurer will defend claims against you, but the more documentation you can provide, the easier it will be for their attorney to gain a favorable outcome.