Errors & Omissions Risk Reduction Checklist
As real estate transactions become more complex, it’s important for real estate professionals to protect themselves from personal liability risks. In the current market, unhappy clients are quick to pursue litigation. Fortunately, you can minimize the possibility of a lawsuit by establishing strong best practices for your real estate firm.
When combining comprehensive errors and omissions insurance with the following best practices, your businesses, career, and reputation will be well-guarded against costly legal claims.
Recommend Qualified Home Inspectors
Give your buyers a list of qualified home inspectors. When viewing a house, you should point out any potential defects and let your buyers know that they should have these defects checked out. Make sure to document that the buyer received the list of qualified inspectors and whether or not any inspections were done. You don’t want buyers coming back claiming that you misrepresented the property.
Create Written Customer Service Policies
When you treat your customers right, and they have a great experience with you, they are much less likely to sue you for negligence. It’s best to write down and clearly define your policies so everyone at your firm is on the same page. These policies might include items such as delivering paperwork in a timely manner, returning phone calls, and keeping good records. When you consistently execute great customer service, you reduce the risk of litigation.
Keep Impeccable Records
If things go south with a particular real estate transaction, your records are your best defense. If you can document everything about the transaction, then you can show that you were not negligent and made no misrepresentations. This means documenting every interaction with clients, having clear paper trails that show every step of a transaction, and having a great filing system to keep records organized and accessible. Make sure you know how long you are required to keep this documentation. In some states, you may be required to keep your documents for 10 years.
Use Standard Board-Approved Forms
Approved forms have been peer reviewed and heavily evaluated by leaders in the real estate industry. Don’t reinvent the wheel by designing your own forms for disclosures and purchase agreements. It just increases the likelihood of making an error and opens you up to the possibility of litigation.
Find a Reliable Insurance Broker
Finding an insurance broker that you trust is an important part of minimizing your risk. You want a broker who will look out for your interests first. Your broker can help you select the best insurance policies for your unique needs. They can also help you review your documentation and transaction records. Having an extra set of eyes will help you prevent mistakes.
Make Sure Your Entire Team is Licensed and Insured
A real estate transaction can involve lots of people: appraisers, contractors, lawyers, inspectors, and many more. Each of these people should be licensed and insured. If you refer your clients to one of these people, and they make a mistake, their insurance will help protect you from claims of negligence.
Give Advice Only Within the Scope of Your Expertise
Refer clients to qualified professionals for areas outside the scope of your expertise. Don’t give your clients advice about construction, repairs, or other issues. If you make a mistake, you can be sued.
Obtain a Written Seller’s Disclosure Form or Waiver
The seller needs to provide you with a written disclosure about the condition of the property being sold. You want to make sure that this disclosure matches up with your own knowledge of the property. Have the seller make adjustments to reflect the actual condition of the property. The nature of the disclosure varies by state, so be familiar with what your state requires in the disclosure.
Provide Full Disclosure
You don’t want to conceal anything you know about the property. Whether it is an issue with building materials or the fact that the empty lot next door will soon be developed, you have to tell your buyers this information and document that you told them. This will help you avoid future allegations of negligence.
Avoid Extreme Adjectives
Honesty is the best policy when describing properties. Don’t use adjectives that overstate or misrepresent the condition of the property. For example, if someone made a few minor repairs, don’t refer to the property as renovated. This could make your customer think that the property underwent extensive remodeling, and they will be disappointed when they find out the truth.
Follow Pre-established Office Procedures
If you are going to execute practices that help reduce your liability and keep your clients happy, it’s best to engrain these procedures into an official office policy. This will keep your team on the same page and help with onboarding new hires. Review your office policy periodically to keep it up-to-date. Have your employees periodically review it so they can keep the information fresh in their minds.
Be Familiar with Fair Housing Laws
Educate yourself and your team on federal and state fair housing laws. Discrimination in housing and real estate is a serious issue and can lead to legal action. If you are found to have managed a transaction that discriminated against certain buyers, you may be sued.
Regularly Review the Code of Ethics
As a realtor, you are held to a high ethical standard. The National Association of Realtors Code of Ethics lays out standards of practice for all real estate professionals. Review the code regularly to remind yourself and your team to always act with integrity in your transactions.
If you are not sure of something, it’s okay to tell a client that you will get back to them. It’s better to be honest than to give your client bad advice. Seek assistance from knowledgeable professionals when you don’t feel confident.
Report All Incidents Promptly to Your Insurance Company
Let your insurance company know about any potential client claims. Depending on your policy, late reporting may jeopardize your coverage.
Follow Best Practices to Reduce Your Liability Risk
If you follow this checklist for every real estate transaction, you can significantly reduce your risk of an errors and omissions claim. Along with a solid insurance policy, following best practices is a great way to help manage risk as a realtor.