Top 5 Claims Faced by Real Estate Professionals

Real Estate Errors and Omissions Insurance (E&O) covers real estate professionals for possible claims made while performing a professional service not covered by general liability insurance. This insurance is generally purchased by agents and brokers,  and is written to cover sales, leasing, property managers/landlords, inspectors, appraisers and other real estate professionals.

Real estate professionals build their business on trust. Often, the money exchanged in transactions is significant. This sometimes leads to legal claims for real or imagined errors or omissions of certain duties. Here are five common claims made against real estate professionals, followed by a few examples.

Common Claim Types

Fraud

In fraud claims, the plaintiff must show that the real estate professional acted with the intention of defrauding, misrepresenting or deceiving them. This action caused harm to the client. It can be affirmative, such as lying to a client, or by omission, where important information is not shared. For example, an agent who knew about termites or property damage in a building and didn’t disclose it to the client has committed fraud.

Breach of Contract

This legal claim alleges that a real estate professional did not fulfill their promise in a contract with a client. Real estate agents aren’t typically sued under breach of contract on the sales contract because they aren’t the buyer or seller. However, they can be sued for violating the broker’s agreement or another contract that’s directly between them and their client.

A property owner for a building rented an apartment to a young man. The young man immediately disturbs the peace by playing loud music and throwing parties late every night. After numerous warnings, the man is evicted, and the former tenant sues the property manager and owner for breach of contract claiming the lease didn’t have a clause pertaining to noise.

Breach of Duty

This is a subset of the breach of contract claim. A real estate agent with a fiduciary responsibility to the client has to represent the client’s best interest over their own. This can sometimes result in a lower commission or payout. For example, a breach of duty claim might involve an agent who fails to disclose significant details about a property. This can include pending liens on a property that the agent or broker knew about.

For example, an inspector misses a crack in the chimney, and the home is damaged by water infiltration. The homeowner’s file a breach of duty, stating that the inspector failed to complete the inspection.

Negligence

This is a common civil court claim that states the real estate professional failed to fulfill a duty to the plaintiff. As a result, the plaintiff suffered harm. In the real estate world, the duty is usually in a contract. In contrast, it can also be a duty of care that the real estate agent should have performed given his fiduciary relationship with the client. This claim isn’t based on intent but states that the real estate agent should have known about a defect or other issue. For example, an appraiser overestimated a building’s value, so the owner’s property tax increases.

Dual Agency

Dual agency refers to deals where the same agent or firm represents both sides of a transaction. This is highly unusual and, if intentional, requires a disclosure signed by both parties.

These are just some of the reasons real estate professionals need additional insurance coverage in addition to general liability insurance.