Protecting Your Real Estate Business with Errors and Omissions Insurance

As a real estate agent, you're likely no stranger to the risks that come with the job. One of the most significant risks is making a mistake that could cost you or your clients a lot of money.

In the real estate industry, errors and omissions insurance is a must-have for protecting your business. This type of insurance covers you against claims of negligence, misrepresentation, or breach of fiduciary duty.

The cost of errors and omissions insurance varies depending on factors such as your location, experience, and the size of your business. On average, a real estate agent can expect to pay around $500 to $1,000 per year for this type of insurance.

With the right insurance in place, you can have peace of mind knowing that you're protected against costly lawsuits and fines.

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Errors and omissions insurance, also known as E&O insurance, is a type of professional liability insurance that protects real estate agents and their brokerage firm against losses from mishaps with professional services.

Real estate is a fast-paced and often risky business with high value transactions that are complicated and emotionally invested clients. Trust is the cornerstone of a real estate agent's relationship with their client, and if that trust is broken, it could lead to an E&O claim.

E&O insurance helps protect real estate agents and their brokerage firm against errors or mistakes that may arise from conducting business with their clients. This can include almost any mistake or omission that a client feels harmed their transaction.

Real estate professionals, like accountants, lawyers, doctors, and architects, have their own specific risks that relate to their industry and business.

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Dropping errors and omissions insurance can cost you more than you think. Some real estate firms may consider cutting costs by going without this coverage, but it's a decision that can have serious consequences.

Errors and omissions insurance provides insurance coverage for legal claims made by clients for poor-quality work or negligent actions. This type of insurance is crucial for protecting real estate firms, appraisers, and agents from mistakes made in the professional services they provide.

If you provide professional real estate services and a client sues your business for a mistake or oversight, errors and omissions insurance can help cover your legal costs. This can be a lifesaver in a situation where you're facing a costly lawsuit.

E&O insurance is professional liability insurance that covers businesses or individuals for mistakes or oversights. It's an essential investment for any real estate firm that wants to protect its reputation and finances.

Choosing the right coverage for your real estate business is crucial. You want to make sure you're not left exposed to risks that could hurt your business.

Exclusions in an E&O insurance policy aren't necessarily bad – they're actually a necessary part of keeping insurance affordable. However, you may need to line up other insurance coverage to plug any risks that fall under your E&O carrier's exclusions.

Insurance companies are typically ranked A to E, with A being the top rating. This means you usually want to buy errors and omissions insurance from a carrier rated A or better.

A larger real estate agency means higher risks, which can lead to higher insurance rates. Rates will be the cheapest for independent realtors, who typically have fewer employees and lower insurance rates.

Here's a breakdown of the types of coverage you may need to consider:

It's also worth noting that having the right insurance provider can make a big difference. For example, PBI Group saved one real estate company thousands of dollars with better coverage than they were getting from their previous provider.

Securing a Real Estate E&O policy with Victor can be a game-changer for you and your clients.

Victor offers the benefits of securing a Real Estate E&O policy, which can provide peace of mind and financial protection for you and your clients.

You can learn more about how Victor's policy can benefit you and your clients by checking out their website.

Exclusions are a necessary part of keeping insurance affordable, but you may need to line up other insurance coverage to plug any risks that fall under your E&O carrier's exclusions.

Most errors and omissions insurance policies will cover the business owner along with all salaried and hourly employees of the company, as well as any subcontractors working on behalf of your business.

Insurance companies are typically ranked A to E, with A being the top rating. The higher the rating, the more financially stable the carrier, which is why you usually want to buy errors and omissions insurance from a carrier rated A or better.

A larger real estate agency means higher risks, resulting in higher insurance rates. Smaller businesses with fewer employees and lower insurance rates are typically independent realtors.

To choose the right coverage, consider the size of your business. A small business with fewer than 10 agents may be able to get away with a basic, state-sponsored policy, but a larger agency will need a more comprehensive policy with broader protection.

Here's a rough guide to insurance rates based on business size:

Keep in mind that rates will vary depending on your specific business and insurance carrier. It's essential to shop around and compare quotes to find the best coverage for your needs and budget.

If you're in the real estate industry, you need errors and omissions insurance. Many states require real estate agents or brokers to have this type of insurance, including Colorado, Idaho, Iowa, Kentucky, Mississippi, Nebraska, New Mexico, North Dakota, Rhode Island, South Dakota, and Tennessee.

Even if it's not required by law, it's still highly recommended for real estate professionals. In fact, all agents and brokers should have real estate E&O insurance, most of all because it's required by a franchise, bank, or state licensing board.

Here are some states that require real estate agents or brokers to have errors and omissions insurance:

It's essential to understand your local laws as insurance requirements and industry regulations vary from one state to another.

Choosing the right coverage for your real estate business can be a daunting task, but understanding the key features of errors and omissions insurance can make all the difference.

Availability is not an issue, as errors and omissions insurance is available in all 50 states and U.S. territories.

You can expect to find admitted policies with an A-rated carrier, which means they have a solid financial foundation.

Deductibles can start as low as $0, which is a significant perk.

Policy limits can reach up to $20 million, providing a substantial safety net in case of a claim.

Here are some of the policy features you can expect:

Investing in employee training can have a significant impact on your insurance premium. Educating your employees on how to reduce risk can lower your insurance premium by showing evidence of having invested in employee training. This makes your team more likely to be viewed as competent and less of a risk to insure.

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Location plays a significant role in determining the cost of your E&O insurance. The cost can vary from one state to another.

In some states, counties, or cities, you may be considered a higher risk to insure, which can impact your premiums. Depending on where you sell real estate within your state, your risk level may be reassessed.

For more insights, see: Errors and Omissions Insurance Washington State

Errors and omissions insurance policies cover defense costs, legal costs, and court costs related to a claim.

The insurance company will pay for expenses to defend the claim and any monetary settlements which may arise when dealing with the claim, minus the deductible.

A reputable E&O insurance company provides coverage for various topics, including Fair Housing, Property Damage, and Failure to advise previous water or flood damage.

Some examples of topics that are covered by E&O insurance include:

In general, real estate errors and omissions insurance provides coverage for mistakes, including related losses up to your policy limits.

The insurance company will pay for an attorney, legal dispute fees, court judgments, plaintiff settlements, court costs, expert witness fees, and administrative costs.

Errors and omissions insurance policies typically cover the business owner, salaried and hourly employees, and subcontractors working on behalf of the business.

Insurance companies are typically ranked A to E, with A being the top rating, and you usually want to buy errors and omissions insurance from a carrier rated A or better.

Policy features can include coverage for errors and omissions arising from professional real estate services, virtual home tours, use of drones, environmental hazards, public relations event coverage, discrimination coverage, and more.

The extent of coverage provided and the insurance limits of the policy will also see the total cost rise or fall, with higher insurance coverage typically coming at a higher premium.

Additional reading: Business Owners Insurance Definition

To make a claim, you'll need to gather information such as the name of your business, policy number, and a brief description of the incident. This information will help you and your insurance agent navigate the process.

When contacting your insurance agent, be sure to ask questions about your coverage, deductibles, and options as a policyholder. Don't hesitate to document everything, including interactions with the insurance company.

Having a history of lawsuits can increase your insurance costs or even lead to denied coverage. Insurers consider claims history when evaluating your risk level.

Here are some common exclusions from real estate errors and omissions insurance policies:

Failure to Advise is the most popular type of claim, accounting for at least 90% of claims filed against real estate agents. This can happen when a sell-side agent fails to list a property correctly or a buy-side agent doesn't notify the buyer of flaws, restrictions, or obligations associated with the property.

Dual Agency Claims are also common, especially when a real estate brokerage collects commissions from both sides of the transaction. This can lead to claims of wrongdoing, including collusion, misrepresentation, or fraud.

A history of lawsuits against you can make insurers see you as a major risk, resulting in more expensive E&O insurance or even denial of coverage.

Making professional mistakes, such as incorrect documentation or marketing a property incorrectly, can cost clients money or even cause deals to fall through. This can lead to court cases or reputational damage.

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If you're dishonest about a property or commit fraud, your E&O policy won't cover you. This is considered criminal activity and can result in claim rejection.

Here are some examples of exclusions from real estate errors and omissions insurance policies:

Failure to Deliver Services can be a costly mistake in real estate. This type of error occurs when you fail to follow through with repairs, paperwork, or any other task related to the sale that was your responsibility to complete within a given time frame.

Making a mistake in this area can lead to reputational damage and even end your career. Diligence and attention to detail are essential to avoid such errors.

To avoid failure to deliver promised services, you can use tools like Paperless Pipeline to manage your property transactions. This platform helps you create powerful checklists and make document reviews simple and quick.

With Paperless Pipeline, you can customize and automatically apply checklists based on the type of deal, size, location, and each separate stage or status. This helps prevent errors and ensures that all tasks are completed on time.

Here's a list of the types of errors that can occur due to failure to deliver promised services:

If you do make a mistake, E&O insurance will cover you for any legal defense costs you may have to pay. It's essential to review your insurance policy and gather necessary information before making a claim.