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The purchase of real estate is likely one of the most expensive and emotional purchases an individual will make in a lifetime.  All parties involved want the process to go smoothly and it is ultimately the REALTOR® that operates in the greatest spotlight of any sale. The buyer, seller, lender, appraiser and Title Agent all conduct their business based on the deal that the REALTOR® has arranged. Subsequently, the REALTOR® is often susceptible to perceived, if not actual, responsibility for anything that might go wrong.

REALTORS® generally protect themselves in the course of performing their professional activities with Errors & Omissions insurance (sometimes called Professional Liability or Malpractice). This type of insurance is one of several steps that an agent or broker can take to increase their levels of skill and professionalism. Continuing education classes, workshops and involvement in state and local REALTOR® associations contribute significantly to a professional agent's competency. It is no surprise then that these activities may also help reduce the premium an agent might pay for errors & omissions coverage. Your coverage not only protects you for an alleged error, but may also protect you if another professional is accused of making an error, and all parties in the transaction have claims made against them. A recent claims example involves the brokers, mortgage lender and attorney being sued for an improperly done land survey.

Some important factors to consider when chosing an E&O Policy include: Who and what does the policy cover? What does the policy exclude? What is the process in the event of a claim?  Does the policy cover work performed by subcontractors? Does it cover the subcontractors or just the policyholder? What about lockbox protection? Discrimination? Does the policy provide 'tail coverage'? Though every insurance policy is different, there are some common features.

Consider carefully the limit option you wish to purchase. Some states require minimal coverage to maintain a license, but is that enough coverage to protect your personal and business assets? Remember that if you have subcontractors or additional insureds on your policy, your coverage level may be reduced as it is spread amongst these different parties.

Review your policy exclusions carefully as this will identify what is not covered in the policy. If you are engaged in secondary activities like property management, appraisals or insurance sales, make sure these activities are not excluded under your policy.

Though none of us ever think we will be sued, it is prudent to choose your insurance company carefully. Insurance companies are rated according to their financial stability with the highest rating being A++. You want to be sure that your carrier will be around to respond and pay out a claim should you have one. We do not recommend working with a carrier who has lower than an A- rating by A.M. Best.

When you choose your E&O coverage -  make sure you align yourself with a company that is accessible and experienced in Real Estate Errors and Omissions Insurance. Your agent should be able to answer questions about the policy, application and claim process. You should also be able to obtain proof of coverage and certificates of insurance, should you need one, in a timely manner.