Coinciding with the cooling housing market, the frequency and severity of lawsuits filed against real estate professionals have escalated. A contributing factor to this phenomenon is self-reported frustration from buyers who completed transactions at the height of the market. At Victor Insurance Managers LLC, we’ve seen year-on-year increases in both the frequency (9%) and severity (13%) of errors & omissions (E&O) claims between 2021 and 2022, with average paid losses climbing to approximately $39,000.
Predictions from real estate experts anticipating home prices to stagnate or decrease further in 2023 coupled with increased mortgage rates, point towards a continued down market in the year ahead. Not only will the increasing likelihood of real estate professionals being sued continue in the months ahead, macro-economic trends are causing increased costs for home repairs, resulting in greater claim remediation expenses to rise. This has created a challenge for real estate professionals:
- Supply chain disruptions have led to delays in home repair and renovation projects resulting in claims taking longer, and therefore more costly to resolve;
- High levels of inflation have pushed up the price of construction materials and;
- Labor expenses are creeping up due to ongoing shortages in the construction industry.
Provide full and complete disclosure to your clients
Throughout the home buying process, it’s vital that you disclose all known defects, hazards and other relevant facts to your clients. Buyers, who either overlooked or were unaware of a defect during the inspection process, and now live in a home with a value below what they paid, are more likely to direct their frustration at their real estate agent. In conjunction with soaring home repair costs, the growing severity of nondisclosure claims is an unwelcome but very apparent peril you want to avoid.
Early reporting of claims to your insurance provider
Early reporting minimizes your exposure. The moment you become aware of a claim, provide your insurance provider with a written report that documents important evidence, details and all available facts. The sooner you notify your insurance provider, the sooner it can be processed, managed and brought to a resolution. Failure to report claims in a timely fashion can often lead to a denial of coverage for claims that otherwise would have been covered.
Ensure that your E&O limit of liability can cover the total loss of a property
It’s crucial that your E&O policy has a limit of liability large enough to cover the total cost of a property that your client has purchased. If you typically sell $500,000 homes and you’re now selling a $1,000,000 home, you’ll be underinsured if your coverage limit isn’t equal or above the value of the property sold.
Secure, strong and stable errors & omissions (E&O) insurance coverage
It is vital that you have quality E&O coverage in place with a specialist insurer who has experience dealing with different market cycles. Partnering with a strong and stable provider with a long track record of serving the real estate industry matters as lawsuits increase.
Victor Insurance Managers LLC. is one of the largest and most experienced underwriting managers of specialty insurance programs in the world. Victor’s Real Estate E&O program provides real estate professionals with the strong, stable and cost-effective coverage they need to operate in today’s changing market.
As a proud partner of the National Association of REALTORS®’ REALTOR Benefits® Program, Victor offers E&O insurance premium credits to NAR members where applicable by state law.
Visit victorinsuranceus.com/NAR to find out more and get a quote today.
