The top risk management threats for real estate agents
Buying a home is the biggest investment that most people will ever make, so the stakes can be particularly high for real estate agents if a transaction doesn’t go according to plan.
Injuries at an open house and lawsuits filed by dissatisfied home buyers are examples of the risks that real estate agents face every day. But with a solid real estate risk management plan and the right insurance policies, unforeseen events are less likely to affect your career and income. Here are some of the most common risks your real estate business faces:
Open house accidents and injuries
Homes that are in desirable neighborhoods and competitively priced are bound to draw large open-house crowds, which increases the chance of injuries.
While it is advisable to stage a home for an open house, do so in a way that leaves plenty of space for prospective buyers to maneuver, and keep a close eye on children. If you are showing a particularly large property, you might ask a colleague to help so that you can keep a better eye on visitors. The National Association of Realtors (NAR) offers 10 tips for keeping agents and home shoppers safe at open houses.
You could be sued if a visitor gets injured at a property you’re showing. Protect yourself by purchasing general liability insurance for real estate companies. General liability insurance will also cover damage to a seller’s property during an open house.
If you fail to disclose a property defect to a buyer, or accidentally provide incorrect information, you run the risk of a lawsuit. Professional liability insurance, also known as errors and omissions insurance, protects you against work mistakes or inaccurate information that causes client dissatisfaction.
Real estate transactions entrust agents with clients’ financial information, and if you store this information digitally, you should also consider cyber liability insurance. This policy can cover expenses related to a data breach, including lawsuits, client notifications, and data recovery.
Codes of ethics violations
Real estate agents must follow a code of ethics and professional standards. Accidentally or intentionally violating them could prompt a home buyer or seller to sue you. Be completely transparent with clients in all aspects of a real estate transaction, and make sure both the buyer and seller have all terms in writing.
NAR’s extensive Code of Ethics & Standards of Practice is a good resource for agents who want to brush up on industry best practices. Note that some state realtors’ associations may have separate ethics codes and practice standards.
Real estate agents are frequently on the road traveling to open houses, client residences, or their brokerage’s office. Personal auto insurance policies won’t always cover damage sustained in an accident when you are driving for work. Hired and non-owned auto insurance protects personal vehicles that you drive for business and should be a part of your real estate risk management plan. If your brokerage owns the car that you drive for work, you may need to purchase commercial auto insurance, which pays for damages to other drivers’ vehicles and their medical bills.
Housing market volatility
The U.S. housing market can swing from boom to bust periods, which can cause significant variation in real estate agents’ businesses and incomes.
No insurance policy can protect your business from a housing market crash, but you can stay up to date on market conditions by following a few key indicators. Robust annual appreciation, low inventory levels, a brisk pace of sales, and many properties selling for more than the list price are signs of strong buyer demand.
Year-over-year price depreciation, a sluggish pace of sales, frequent price cuts, and rapidly rising inventory typically signify a cooling real estate market, though an increase in the number of homes for sale could mean more business for agents who represent buyers.
NAR’s research includes monthly reports with key statistics and a broad overview of the U.S. housing market, and its quarterly reports offer data on a metropolitan-area level. Your state’s official realtors’ association likely publishes market statistics each month, and most agents have access to their local Multiple Listing Service for hyperlocal data.
Finally, don’t forget to keep an eye on national and state employment reports, as job markets directly affect consumer sentiment and demand for real estate.
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