Everything to Know About
E&O Insurance for Real Estate
TLTR: The real estate business is all about the right conversation, the right location and the right insurance. This article discusses E&O insurance for real estate, what it is, and why every real estate business needs it.
There’s no ceiling to how much you can earn in the real estate business: you just need to be great at it.
But what makes a person excel at selling real estate?
Some say successful real estate agents prevail due to their natural charisma. Others say it’s all about luck and location. There’s some truth in both. But we believe that part of the secret to becoming a great agent is having E&O insurance for real estate.
In this blog
What is E&O Insurance for Real Estate?
Errors and omissions insurance can help protect you from costly legal fees as a result of errors made by your company. This coverage is absolutely necessary for any business that deals with the public in order to operate efficiently, safely, and free of financial burdens.
You may have been sued before or seen warnings about lawsuits on TV. But do you know what an error looks like legally? It’s not just typos. There are many ways one might be held liable due to their negligence which could lead them into this sticky situation if they are unprepared when it comes time to stand up against these accusations in court. Errors and omissions insurance will offer protection should such events occur.
What Does E&O Insurance for Real Estate cover?
E&O insurance for real estate covers a variety of mishaps. According to Insureon, the three main areas of coverage are:
Accusations of negligence
For any real estate agent, there’s always an underlying risk that a client could accuse you of negligence. This could stem from an agent failing to uphold professional standards, but it could also just come from buyer’s remorse on the client’s side or small human errors like typos on legal contracts.
One common lawsuit against realtors is the omitting of information that could’ve deterred the client from buying the home. Real estate agents can avoid such claims by preparing full property disclosure forms. This means reporting, in writing, everything and anything that could be wrong with the house, especially serious issues such as:
- Water seepage in a basement
- Termite damage
- Black mold
- Ice dams on a roof
Even smaller types of damage within the house, such as cracks in the floorboards, loose fixtures, or creaky doors should be disclosed. Although even inspectors and appraisers can miss small or large details. To stay on the safe side, buying E&O insurance for real estate is a wise choice as it covers this issue.
Other negligence claims covered by E&O insurance include:
- Dual agency
- Breach of fiduciary duty
- RESPA violations
Sometimes something as small as a typo can land you in court. Typing up “1,080 sq ft” instead of “1,800 sq ft,” for example, could cost your client big money. Making errors that lead to financial loss for your client, particularly in regards to property transactions, can potentially end your career in real estate.
E&O insurance for real estate can help cover agents in these nasty situations. While insurance will not make your mistake go away, it can cover:
- Attorney’s fees
- Court and witness costs
- Settlements, judgments, and fines
In real estate, wording is everything. Even the most careful and conscientious real estate agent can make a huge mistake by using the wrong words. For example, you are selling a fully solar-powered home, but you forget to mention that the panels have certain limitations and could require further installment depending on the needs of the client. While this information might seem implied within the context of how solar panels work, the client could sue you for a false claim that the home is fully solar powered.
Failure to deliver promised services
This happens when you fail to follow through with repairs, paperwork, or any other task related to the sale that was required of you to fulfil within a certain time period. When it comes to property investors in particular, wasted time is wasted money. Whether you were at home with a serious illness or grieving the loss of a loved one, even with the most valid excuse, you might be looking at a lawsuit.
How Much Does E&O Insurance for Real Estate Cost?
According to The Hartford, E&O coverage typically costs anywhere between $500 to $1,000 on average per employee, per year. So, depending on the number of people you employ, you will spend between an estimated $25,000 and $50,000 per year. This estimate is very rough, as ultimately, the nature of your real estate business and various other factors affect the actual costs.
Real estate businesses can vary greatly. There are large real estate companies, smaller agencies, and also independent realtors. There are variations in locations, office structures, the type of real estate they sell, and many other factors. Errors and omissions cost depend on the following:
The more agents there are working for an agency, the higher the risks. Small businesses typically have fewer employees and lower rates. Independent realtors will have the cheapest rates.
The higher budget your clients, the more likely you are to face lawsuits.
Industry and the types of risks you face
For example, there are more risks involved with commercial real estate than with residential real estate.
If you can show evidence of investing in employee training, your employees are more likely to be seen as competent, and hence, less of a risk.
The cost of your E&O insurance can vary from state to state. Also, depending on where you sell real estate within your state, county or city, can make you a higher or lower risk.
If you have a history of lawsuits, you will be seen as a major risk and your E&O will be more expensive.
The amount of coverage you need will also make your total costs lower or higher. As with all insurance types, higher coverage comes at a higher cost.
Speaking to an agent is the only way to get a clear and accurate quote on your E&O insurance for real estate. Real estate businesses can come in all sizes and structures. To ascertain the exact costs, risk analysis with an agent is necessary.
What Isn’t Covered by E&O Insurance for Real Estate?
Exclusions are the events and costs will not be covered in your policy. All insurance types have their own exclusions. E&O insurance is no different.
The biggest exclusion would be coverage from any and all claims that stem from a real estate agent being dishonest. If you are proven to be lying in your claims about even the smallest detail, your overall claim will be excluded even with the highest coverage. If you are proven to be lying about a house you are selling, or engaging in any sort of fraud outside of your claims, similarly, your E&O cannot bail you out. This is considered criminal activity.
Damage caused by a real estate agent to a person’s property that occurs in the course of work is also not covered by E&O. For this type of damage, an agent would need general liability insurance. For this reason, general liability is another important coverage to have, especially if you are dealing with high quantities of real estate deals in short periods of time. Mistakes can always happen.
Polluted property is another major exclusion in E&O insurance for real estate. In almost every state, real estate agents are legally required to disclose knowledge of waste. This is mainly due to health and safety reasons. The waste could be under a structure, on a piece of land, or just near the premises of the area on sale, or even just former pollution. It still needs to be disclosed as it can affect a buyer’s choice.
Other Policies For Real Estate Professionals
Errors and omissions insurance for real estate is crucial when it comes to protection from lawsuits. However, this does not mean it’s the only coverage necessary to protect your business. Outside of the potential mishaps of lack of disclosure, office typos and missed timelines, there are still so many other things that can go wrong.
We’ve already mentioned general liability for damages, here are some other policies worth looking into, as recommended by The Balance:
Business Owners Policy for E&O Insurance for Real Estate
Business owners policy is a combination of general liability insurance and commercial property insurance. It’s highly recommended for any business as the top two most-claimed insurance policies. It also typically costs much less than if the policies were to be purchased separately.
Commercial Auto Insurance for E&O Insurance for Real Estate
Commercial auto insurance covers any vehicles your real estate business may own. It can pay for any road accidents and subsequent medical bills. It can also pay for damages sustained by the vehicle that are related to theft, vandalism or harsh weather conditions.
Workers Compensation Insurance for E&O Insurance for Real Estate
Workers compensation insurance is legally required in almost every state for all businesses that hire employees. Real estate businesses with employees are no exception. It covers medical expenses for work-related injuries and illnesses. It also covers lost salary from days missed from work.
Whether you’re banking on your charisma to make your next big sale, or you spend your days scouting and negotiating for locations, getting E&O insurance is the real secret to achieving all your real estate goals. You can be great at something, but without the right insurance coverage, that something can slip away from you at any moment. E&O insurance for real estate is the secret protection you need.
If you want to learn more or need a quote for your real estate business, find an agent today! Ask any questions or share your secrets to real estate success in the comment section below.
E&O Insurance for Real Estate FAQs
What are the best providers of E&O insurance for real estate?
According to Bravo Policy, the recommended providers for E&O insurance for real estate are:
- CoverWallet: Best for Comparing Online Quotes
- Victor Insurance Managers: Best for Discounts
- Insurance Bee: Best for Affordable Coverage
- 360 Coverage Pros: Best for Fast Enrollment Process
- RISC (Rice Insurance Services Company): Best for Mandated Coverage
- CRES insurance services: Best for Comprehensive Coverage
Can you pay E&O insurance for real estate monthly?
Your monthly payments will cover a minimum of one transaction each month. That will give you coverage for the full annual E&O policy.