Being in real estate is an incredibly lucrative and rewarding careers choice. I know this because I have many family members who are engaged in different aspects of the real estate business and I see the results of their hard work. They’re never on vacation, their nights are late, their email never empty; the life of a Realtor is fast-paced and always on the go. But it’s not all sunshine and roses either. A close friend of mine, a very successful Realtor for nearly 20 years, is always on edge for every deal until the transaction is closed at the title company. After a few discussions with her, she’s never completely relieved because of Realtor Errors & Omissions (E&O) horror stories that can arise even after the keys have traded hands and buyer takes possession of the property. Even when you do everything “by the books,” a Realtor Errors & Omissions claim can strike.
Everyone I know in the real estate business are incredibly ethical. They have a process. T’s are crossed and i’s are dotted on each and every transaction, but because of the highly litigious environment that we all operate in, it doesn’t take much to file a suit against anyone, even if you feel like you’ve done everything in accordance to the laws and regulations that the Realtor community must abide by. I know of one particular Realtor that refuses to take listings from attorneys because “why would I represent someone that can sue me for free?” They later stated that they’re thankful lawyers are not a protected class.
Insurance is meant to protect you in the event of a loss; it can even protect you from yourself.
With that said, over the next few blog posts, let’s look at a few real-life Realtor Errors & Omissions claims that Realtors have faced. These real estate claim scenarios are not from our clients but by cases that we’ve come to know by working in this space for so long.
Today, let’s talk about non-disclosures.
The non-disclosure agreement that Realtors sign with their clients is an agreement that most Realtors know not to violate. Privacy is critical in every financial transaction and as Realtors, you will become privy to the inner details of someone’s life. Their bank records, their tax situation, pending legal matters, medical bills, collections, income, and even in some cases, marital and familial issues. You end up knowing everything about your client, sometimes, more than you would like to know.
The non-disclosure agreement states that you will not disclosure private information to an outside third party without the consent of the client. You will need permission to share any private information you collect with mortgage brokers, other Realtors, or anyone else involved in the transaction. Breach of this agreement does not need to willing or voluntary though. Any breach of the non-disclosure is classified as breach.
Mary’s client Jill was a dear friend. Jill was putting her home up for sale and, obviously, used Mary as her agent. Mary became privy to a lot about Jill’s life because she was her agent. She thought she knew everything about her friend of 20 years but discovered that Jill and her husband we’re heading for divorce. There were financial problems, back taxes due, and had they continued this on for another six months, foreclosure would have been the next step for Jill’s home.
Mary took this in confidence, and even after 20 years of friendship, Mary and Jill signed the non-disclosure agreement.
At a dinner party a few weeks later, Mary was to meet Jill but she didn’t show up. Mary in passing to another friend stated something to the effect of, “well, you know they’re not doing real well right now” and proceeded to share a few details about Mary’s life that was disclosed during the agent-client discussion.
I don’t think I have to tell you that groups of friends talk. Unfortunately, what followed for Mary was a legal battle that pitted two friends of two decades against each other. Mary did indeed violate the non-disclosure agreement by divulging details that she may have known as a close friend. Mary never should have mentioned anything about her client’s financial or familial situation that she became of aware of during her business transaction.
Money and the breach of privacy can do strange things to a relationship. This is where professional liability insurance can save the day, even in a case of friends. Insurance is meant to protect you in the event of a loss; it can even protect you from yourself.
How a Realtor Errors & Omissions Policy Would Respond
In a scenario such as this, a claim would be filed by Mary once she realizes she’s in over her head. Lawyers will be retained, settlements will be made, and she can continue her business as normal, hopefully learning something about her business practices along the way. Without insurance, a case like this could very well bankrupt a Realtor with judgments quickly escalating to hundreds of thousands of dollars in damages. Mary would need to pay for the deductible in a scenario like this, but at worst, she’d be out a few thousand dollars in expenses and that would be it. A Realtor Errors & Omissions policy would respond to pay the legal fees, court costs, settlements and any other direct causes of loss resulting from the claim up to the policy limits that are selected upon purchasing the Realtor Errors & Omissions policy. A policy holder can select policy limits that they feel exceed their need of risk and can even be layered with additional coverages found in an umbrella policy.
We share stories like this, not to scare you, but to show you that even an agreement under the best of intentions, among friends, can have dire consequences for a business.
Have a question about Realtor Errors & Omissions Insurance? Just let us know and we’ll be glad to have a discussion with you about insuring your business without the high-pressure sales pitch that you’ll get from most agents. The only dumb question when it comes to insurance, is the question that is never asked.