Quality real estate errors & omissions insurance (E&O) will help you protect your business against claims of negligence or mistakes when purchasing property as a real estate agent, or selling property in which you have an ownership interest. However, be aware that many errors & omissions policies have very broad agent-owned property E&O coverage gaps.
Let’s explore those agent-owned coverage exclusions in professional liability policies, and what you can do to mitigate the risks and close the gaps.
Will Real Estate E&O Cover the Sale of Agent-Owned Properties?
Generally, all E&O policies have a broad exclusion for any claim involving the purchase of real estate by an agent or any property owned, or constructed/developed by an agent. Additionally, this sometimes includes even properties a spouse or related entity constructed or developed.
That said, any policies will then go on to list exceptions to the exclusion. Of course, the more exceptions, the better.
Keep in mind, this could be an agent selling their primary residence as well as purchasing land. Or, it might be an agent who purchases a property with the intention of fixing it up and selling it for a profit. Because many agents get into the business to sell their own property or do flips, these gaps can be very concerning.
For those reasons, you need to carefully consider the wording of your E&O policy.
Common Exceptions to the Exclusion
Individual Real Estate E&O Cost
Below are common agent-owned property E&O coverages granted under many E and O policies. However, many of these are not broad enough to cover many, if any agent-owned transactions in your firm.
1. the sale only of certain residential property owned by an agent with a list of parameters (often specified signed forms, disclosures, etc.).
2. the sale of a home owned by an agent if sold by another agent at your firm.
3. the sale of some agent-owned property if ownership interest is below a certain %.
4. the management of certain property owned by an agent.
5. Guaranteed sales listing contract with some parameters.
6. the sale of agent-owned primary residence only.
If these agent-owned coverages are provided in your E&O policy, they could be adequate for some agents.
However, most E & O policies still exclude the purchase of property by an agent. Additionally, they often exclude properties constructed or developed by an agent, their spouse, or a related entity.
Finally, they might exclude agent-owned property E&O coverage for the sale of land, flips, commercial, or even residential property if it does not meet certain parameters. For many agencies, this is simply too much risk to have no coverage.
At FirmSecured, we work with a few professional liability carriers that provide much broader coverage for these claims. Some of these E&O carriers include coverage for some of the most of the commonly excluded categories mentioned above. If you would like to get some of those options for your firm, complete our quick contact form. Or, you can schedule time for a policy review on Google Meet.
Risks of Selling Agent-Owned Properties
Selling agent-owned property can create several risks for real estate agents and brokers, including:
Conflict of interest: When selling a property that you have an ownership interest in, there may be a perceived conflict of interest. Your clients may believe that you’re trying to make a profit at their expense, even if that’s not the case.
Perception of wrongdoing: Even if you’re upfront about your ownership interest in the property, clients may still perceive that something is amiss. This perception could lead to negative reviews, loss of business, and legal action.
Legal consequences of non-disclosure: If you fail to disclose your ownership interest in a property, you could be subject to legal action. This could include claims of breach of fiduciary duty, fraud, or misrepresentation.
Mitigate Those Risks with FirmSecured
Knowing that you, your firm, and agents have proper coverages when selling or purchasing property your agents own is crucial.
Most insurance agents are simply not aware of these important details in errors & omissions policies. So, you need to work with an insurance agent & firm who knows the specific E&O exposures of real estate agents.
Keep in mind, missing agent-owned property E&O coverage is just one of many potential gaps in your coverage.
If this article has been helpful for you, we would be honored with the opportunity to continue to serve you and your firm.