Errors, Omissions, Insurance
The Real Estate Professional Guide to E&O Coverage

Introduction: How Real Estate Agents Can Close the Door on Lawsuit Risk

Introduction: How Real Estate Agents Can Close the Door on Lawsuit Risk

You know how doctors can face a malpractice lawsuit when they make a mistake? Real estate agents actually have a similar "malpractice" risk: clients can sue you, claiming you haven't done your job as an agent.

But here's the thing: while it's easy to know when doctors make a mistake ("I'm sorry, doctor, but you've left a scalpel floating in my chest!"), it's harder to say for sure when a real estate agent has.

For instance, if you fail to warn buyers about things like water seepage in a basement, termite damage, or ice damming on a roof, they could sue you for failing to uphold professional standards. Even if you didn't know about the defect, the buyer might sue. And even if you're ultimately cleared of wrongdoing, lawsuits cost money.

Errors & Omissions: The "Malpractice" of Real Estate

The phrase "errors and omissions" refers to the malpractice risks real estate professionals face — in other words, the risks they face related to the standard of care they're expected to uphold. E&O risks may include…

  • Property condition disclosure (or non-disclosure).
  • Dual agency.
  • RESPA violations.
  • Breach of fiduciary duty.
  • And more.
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E&O Insurance protects real estate agents from lawsuits over mistakes or oversights in their work.

If a client believes that a real estate professional has made one of these mistakes or oversights, they can sue. The costs of that lawsuit, whatever its outcome, may be covered by real estate Errors and Omissions Insurance.

How does this insurance work? As a real estate professional, you're probably familiar with mortgage insurance, so let's use that as a starting point to help us understand real estate E&O.

How Real Estate Errors & Omissions Insurance Works

A lender who offers a high loan-to-value (LTV) mortgage might sign up for mortgage insurance, which pays them if the borrower defaults on the loan and can't pay it. Because of how much money is at stake with these mortgages, lenders and banks want protection in case something goes wrong.

E&O Insurance works a bit like that. In your career as a real estate agent, you'll work a lot of sales. For the most part, nothing will go wrong. But if there is a problem with a sale, your client could sue you, and the cost of the lawsuit could wipe out your business. E&O Insurance may pay these legal costs so that your business is able to keep functioning.

When real estate Errors and Omissions covers a lawsuit, it may pay for…

  • Lawyers' fees.
  • Judgments.
  • Settlements.
  • Court and witness fees.

You might have a lot of questions running through your head about E&O Insurance. In this guide, we'll walk you through the basics: how realtor's E&O works, when real estate agents should consider buying a policy, and how much they can expect it to cost.

By the time you finish reading, you'll understand when your agency might want to consider signing up for E&O, how to find a good deal on insurance premiums, and what you can do to prevent lawsuits.

Next: Pt. 1: How Does E&O Protect Real Estate Professionals?

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