7 Ways to Reduce Errors & Omissions Risk for Your Firm

7 Ways to Reduce Errors & Omissions Risk for Your Firm
April 15, 2015 Pearl Insurance

7 Ways to Reduce Errors & Omissions Risk for Your Firm

Risk management is an essential part of any real estate firm’s business model. Errors and Omissions (E&O) Insurance protects you from claims of negligence or misrepresentation, but you can also do your part to ensure that those claims are never made in the first place. Start by incorporating the following seven strategies to manage and minimize risks.

1. Find a reliable insurance broker.

Without an E&O Insurance policy in place, your firm will be financially and legally liable if any claims are made against you. Work with an insurance broker who will put your interests first to find a policy and provider that will protect you. They should have at least three years of experience with real estate firms, and specialize in E&O Insurance that affects real estate in particular. Look up online ratings, ask around for recommendations, and find out how they’ve handled complaints and claims for previous real estate clients.

The right broker will know the ins and outs of E&O Insurance coverage, and they can translate your specific policy into the dates and terms that you need to know. They can help you compare policies, understand which types of complaints may be excluded (such as fair housing or environmental), and take advantage of discounts from your local, state, and national realtor associations. They will also ensure that your coverage is continuous and tell you which prior acts are covered and for how long.

2. Consult an experienced lawyer.

Consider meeting with a lawyer who has specific and extensive experience in the real estate market. They’ve seen your peers make minor mistakes that led to big financial setbacks, so they can steer you away from these and suggest ways to secure your records and financial transactions against future scrutiny. A lawyer may also advise your entire staff about the importance of smart risk management policies.

3. Make sure everyone is licensed and insured.

Don’t make the mistake of working with people who aren’t experts in their field, or whose expertise can’t be proven legally in case of a future liability claim. Real estate agents and firm owners aren’t the only people involved in the process of selling or buying a property. Appraisers, inspectors, lawyers, and contractors also interact with your clients, so their errors or oversights can also lead to claims of negligence.

In the event of a lawsuit, you’ll be financially responsible if your employees, contractors, and partners aren’t insured. However, it gets even worse if your clients (or their lawyers) learn that you didn’t require or verify their professional credentials. Every person on your team should have an up-to-date license and hold E&O Insurance protection.

4. Don’t give your clients wrong or unrelated advice.

Clients appreciate helpful, informative agents who can simplify the process of buying or selling their property. If you can answer their questions and guide them toward decisions that serve their best interests, they’ll be more likely to recommend your firm and trust you with future transactions. On the other hand, if you give them the wrong information or convince them to make poor choices, you could be liable for the consequences.

To avoid this, stick to topics that are directly related to real estate. Don’t give your clients advice about taxes or the legal system, because you’re not licensed in those fields. Err on the side of caution when it comes to your own expertise too. Don’t make any guesses, especially when numbers are involved. If you’re ever unsure about a question they ask, double-check before giving them a final answer.

5. Write an official customer service policy.

Relevant, accurate advice is just one ingredient in an effective customer service strategy. Your agents should also return calls promptly, keep accurate records, take notes about clients’ interests and needs, and arrive on time to every appointment. To prevent any miscommunications and hold each team member accountable for their business interactions, write a customer service policy that everyone can reference at all times.

6. Disclose every defect.

Most legal claims against real estate firms come from allegations of misrepresentations about the physical condition of a property. Fortunately, misrepresentations are covered by E&O Insurance, so long as they are not found to be an intentional misrepresentation. Therefore, it’s important to disclose any defects of the property’s physical condition with official disclosure forms. Do the same for any conflicts of interest. If you don’t, your client could back out of the deal at the last minute, or sue you later for damages.

7. Document everything.

Your paper trail is your best defense against complaints and lawsuits. After you meet with a client or speak over the phone, send them an email that summarizes the main points you discussed. Save electronic and physical copies of every single form and document involved in your transactions, and back up your digital files in more than one location. Every form should be board-approved, and your broker should sign off on them too.


While a good broker will help you reduce your risks and secure comprehensive coverage, the price you pay for E&O Insurance depends heavily on the way your firm operates on a daily basis. The volume and value of your transactions are important considerations, but so is your ability to minimize risks. Effective risk management strategies are the best way to lower your premiums and deductibles, and to defend yourself against any future claims or complaints.