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It is an interesting fact that while most REALTORS® study sale and purchase contracts and contract changes ad nauseum, few ever take the 20 minutes to read their Errors and Omissions (E&O) insurance contract. As a result, many are surprised when they find out that some of the services they offer, such as property management or business brokerage, and certain transactions, like agent-owned properties or sale of condos, are not covered by their E&O policy.
Unfortunately, the real estate industry is currently going through some confusing and controversial times. Consumers may be looking for someone to blame for losing their jobs or losing their homes. If the purchase transaction is disputed, or if the threat of foreclosure is nearby, the person that the homeowner likely will remember from the transaction is the REALTOR®. The face the consumer will connect or remember will be yours! During the purchase of the home, REALTORS® are often the only “human” contact a consumer has during the transaction. As a result, you may be sued in hopes of passing the blame off on someone else.This much we know to be true—California is a litigious state. While you are not expected to be a legal expert, an expert in appraisal, or a fortune teller for what may or may not happen after the contract is signed, you are expected to educate yourself about the current legal challenges facing the industry so you can protect yourself.
Do you know what your E&O policy includes or covers? Are you sure? Do you want to wait until the lawsuit is filed before you find out? Although the housing market in California is not what it was five years ago, REALTORS® are not closing as many transactions as before, and many are looking for alternative sources of income . For those still in the trenches, now is the time to review, reassess and plan ahead to protect for the future. Now is the time to pick up your E&O policy and read it.Ask yourself the following questions about your current E&O Insurance policy (including all the endorsements). Do you know the answers?
- Are all the types of transactions I’ve done over the last five years (and those I plan to do in the year to come) scheduled as “covered services” on my policy?
- What coverage do I need to list an REO property?
- Is there a deductible reduction feature on the policy? Is it related to specific home warranty companies? Does it require signed seller disclosures?
- What (if any) limitations are there related to the sale of agent-owned property? Does the property need to be listed by another agent? Does the property need to be held for a certain period of time? What other things must be done for coverage to apply? What do I do in the event of a claim? Who do I call? How soon do I need to report it?
- Has my commissionable income changed in the last five years?
As people are losing their jobs, having their credit ruined, and are losing their homes, they may look for someone to blame. As such, REALTORS© have a “bulls-eye” square on their backs. Make sure you know what your E&O policy covers and what it does not. Brokers: understand your policy’s limitations and communicate them to your agents. Agents: ask your employing Broker or Office Manager about what is covered under your contract. If called into mediation or arbitration, stating on the record “I don’t know,” is not an acceptable response.
Costello and Son’s Insurance (CSI) will review your current policy for FREE. CSI is the California Association of REALTORS® (C.A.R.) only endorsed property and casualty broker. CSI is a “one-stop-shop” for all of your business insurance needs.
