Protect yourself against claims of errors and ommissions.
Not only are clients and business partners more willing to bring legal action against real estate agents and brokers, but they stand a good chance of at least some compensation from a lawsuit due to the complexity of real estate transactions.
Particularly in times of unstable property prices, a transaction that doesn't go the way one party expects can result in claims against the real estate agent that include misrepresentation, negligence, failure to disclose and breach of fiduciary duty.
The complexity of real estate transactions coupled with the growing uncertainty in the housing market presents many challenges for the real estate professional today.
Given this vulnerability, there is a greater need than ever before for agents to protect themselves against legal liability.
A typical E&O claim can arise when a real estate agent assists in the purchase of a residential property. Shortly after the closing, the buyer moves into the property, then discover structural defects and deficiencies. If the buyer is unable to locate the seller, the buyer may turn to the real estate agent and claim the agent breached his/her duty to conduct a reasonably competent and visual inspection, was negligent and made misrepresentations.
The best defense to protect against malpractice claims is to implement proper risk management practices, stay abreast of legal developments, and purchase errors and omissions coverage.
Risk management involves recognizing what can go wrong, taking steps to avoid problems, documenting your actions and protecting your assets with financial backstop like insurance. It goes without saying that you should always act in accordance with the highest standards of the real estate profession, but sometimes that is not enough.
A process as basic as keeping a record of your business conversations, including when they took place, who was involved and what was said, can help prove you acted in accordance with those professional standards if you are challenged.
In real estate, as in most professions, becoming licensed is only the beginning of the learning process. You need to constantly stay abreast of new developments in your field, including changes in laws and regulations that effect property use, developments in real estate financing and changes in building code. Professional organizations can be helpful with this.
An important part of risk management involves purchasing Real Estate Errors and Omissions insurance from a financially strong insurance company to protect you and your business. You should look for a policy with the features, limits and deductible options most appropriate to the specific size and type of business your agency is engaged in. If your agency sometimes owns and sells its own property, an E&O policy can protect your in such transactions. A feature like defense in addition to the limits of liability will assure that the amount of claim payout is not diminished by the cost of your legal defense against the charge.
Not every E&O policy is the same. With some policies, simply agreeing to use alternative dispute resolution (ADR) including an ADR requirement in your contract could reduce your deductible by half. If your agency staff includes brokers who are likely to retire within a short time, look for a policy that can provide extended reporting period options, including coverage for retired real estate agents.
Your insurance agent or broker can assist you in purchasing E&O coverage that meets your needs.
Every real estate broker fears being charged with a professional breach, but despite the best actions it can happen to anyone. That's the time when you need the backing of an expert insurance company. Choose wisely.
HARTFORD FINANCIAL PRODUCTS
|Printer friendly Cite/link Email Feedback|
|Publication:||Real Estate Weekly|
|Date:||Apr 5, 2006|
|Previous Article:||Firm creates Comfort level to help private owners, family partnerships.|
|Next Article:||Center for Responsible Appraisals announces new charter members.|