What can have the greatest negative impact on your current and future earnings?

Commoditization of real estate?

Commission decreases?

Online competitors?

Believe it or not, it’s being sued.

That single event, even if properly insured, can threaten everything you worked so hard to build.

Endless lawyer meetings and sleepless nights kill your efficiency. And that is if you are insured. Imagine the effect of finding and paying an attorney to defend you due to some Errors and Omissions (E&O) loophole.

Ask a fellow real estate professional if they have adequate E&O insurance. Many reply “Yes, through my firm.” But the answer isn’t that simple. The actual coverage (or not) comes from a witch’s brew: the broker-agent agreement, the details of the insurance (or self-insurance plan), the legal landscape of principal-agent liability, timing, and the number of agents that share the insurance pool. All this and more factor into the answer.

It’s hard enough for an insurance specialist or a lawyer to figure out. That is scary stuff for an agent. When that crazy buyer starts making noise or files a lawsuit — it’s too late.

Real estate agents should buy their own coverage — even if their firm buys it already. In fact, 13 states reached the same conclusion. They decided individual coverage is so important that they do not issue a real estate license unless the licensee can prove individual coverage.

Here are just a few reasons:

Shared coverage limits

Many firms buy a million dollar policy. But that does not mean that a single agent has access to the entire policy: limits are shared. Every time someone else files a claim, there is less to pay yours and you may be exposed personally. A large firm recently had four claims pending when one crazy jury wiped out the entire policy. Beware — the more agents in your firm, the less coverage per agent.

Switching firms

Some insurance companies won’t protect independent contractors at all. They might volunteer coverage while you and the broker are in lockstep, but what happens if you change firms? You guessed it. Insurance from your new firm won’t protect you for older deals. 

Firm stability

Larger firms tend to be more stable, but they have outsize risks, too. Other than the shared limit problem, no firm is immune from ownership changes and market conditions.

Recently, a firm with 2,000 licensees filed for bankruptcy and canceled their E&O policy. To avoid an agent exodus, they chose not to tell their agents that they stopped covering them. Since the policy had already lapsed, licensees could not find coverage for their prior transactions. The firm walked away, and the licensees were left responsible to pay attorney fees and damages for any claims on all past transactions.

Broad or basic coverage

Firms often do not pay extra to cover discrimination, open-house liability and other optional coverage for activities/services you may regularly perform that may not be part of the firm’s normal business, and therefore, not part of the E&O policy.

These essential business activities can be covered under your own personal E&O policy. For example, if a potential buyer falls and hurts themselves or breaks something during an open house or showing, who pays for it? The answer, more times than not, is you.

The bottom line is that your practice is 100% your business. It’s risking everything to rely on the complicated web of someone else’s insurance policy, your broker-agent agreement and your peers to protect it.

Prudent agents buy permanent, portable and personal protection — their own coverage, whether or not the firm buys it for them. Even better, it’s affordable. Most real estate professionals can get their own policy, with their own limits, and all the coverage they need, for about $1 a day.

Steve Sargenti is a real estate attorney and CEO of San Diego-based CRES Insurance Services.

Please call Sheri (951-929-7605) at Agape Brokers Insurance Agency for all of your Real Estate Insurance needs.

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