Here's an old myth: real estate is always a safe investment.
If you're a real estate agent, you experienced firsthand the Great Recession's real-estate crisis when home prices plummeted and the housing market dried up for nearly a decade. But economic slowdowns are only one of the top five risks you could face.
Because of the huge investment it takes to buy a home, real estate companies have a lot to gain or lose from each sale. That also means that if anything goes wrong — say a buyer and an agent get in a dispute — there could be devastating consequences for your small business.
Here are five risks that threaten your real estate business and how to effectively manage those risks:
#1: Unpredictable housing markets.
Unpredictable housing markets.
In 2013, Robert Shiller won the Nobel Prize in economics for his efforts to show that real estate isn't the safe investment many people assume it to be. Recessions, high interest rates, and fluctuations in lending can affect your ability to buy and sell houses. Keep abreast of industry and economic indicators to monitor the market.
#2: Client lawsuits.
Say you tell a client that their home is in a great neighborhood and the value of the property is likely to go up over the next decade. But what happens if the value of the home stalls? You could be sued in a professional liability lawsuit. Fortunately, Errors and Omissions Insurance for realtors pays for lawsuits when clients sue your over your work or inaccurate statements about the property.
#3: Client injuries.
Open houses can be chaotic. With multiple families scoping out the home, you simply can't be everywhere at all times. Say a family's son is running around the house, when he trips on the stairs and breaks his arm. If an injury occurs on your watch, you could be sued. General Liability Insurance can cover these lawsuits and some insurance policies even cover the immediate cost to call an ambulance and get treatment for injured third parties.
#4: Code of ethics violations.
Code of ethics violations.
If you violate professional standards, you could be fined by your local board and sued by clients. For instance, a broker who fails to disclose a problem with a condominium (e.g., it's located in a noisy corner of the complex) could face a lawsuit. Make sure you're upfront with all clients, get Seller's Disclosure forms signed by all buyers, and know your professional standards inside and out. Read the National Association of Realtors' guide to its code of ethics and professional standards to make sure you're in compliance.
#5: Exceeding scope of your work.
Exceeding scope of your work.
Realtors have to be careful not to offer buyers advice and services that are outside the scope of real estate. Your Professional Liability Insurance only covers lawsuits about your work when you're acting as an agent. If you offer advice that goes beyond the traditional scope, your insurance might not cover the lawsuit.
Risk Management for Real Estate Agents
While these are five top risks, the reality is that your risk management is much more complicated than a simple list can explain. In fact, your risk management changes month to month. Make sure to follow insureon's risk management blog for realtors. We'll post news about local lawsuits, changes in your professional liability, and how to get the most from your small business insurance.