Article by latest.insure
Australia’s real estate services industry is expected to turn over $33 billion this year, including a healthy 1.8% growth from 2021, according to IBIS World. The Real Estate Institute of Australia agrees, describing the industry as “remarkably resilient” despite the pandemic.
Despite the industry’s buoyancy, it’s important to select the right professional indemnity insurance. Here’s how to go about doing so.
PI insurance is mandatory
In providing a service in which advice is offered, agents risk being sued for:
- Incorrect advice
- Failure to take action reasonably expected from a client
- Ambient claims for damages for losses by clients in relation to a property sale
- Failure to manage a property to client expectations
That’s why corporate and individual real estate license holders operating in Australia must have professional indemnity insurance. Licensees also include stock and station agents, business agents, strata and community managing agents, as well as on-site residential property managers.
Professional indemnity insurance aims to protect against financial loss from a claim and covers your legal defence costs and damages payable. In NSW, for example, the Property, Stock and Business Agents Act (2002) sets down that real estate agents must have a minimum $1 million cover for any one claim and at least $3 million for the aggregate of claims. That’s during the period of insurance.
However, if you hold a license and contract your services to one or more agencies, their policy may not cover you. That means you’ll be liable for any consequence, so will need your own policy.
What does PI insurance cover?
Your professional indemnity policy should cover liability arising from your acts or omissions as a real estate licensee, including:
- Negligence, such as providing incorrect advice
- Unintentional, misleading, or deceptive conduct
- Breaches of professional duty, such as confidentiality and privacy
- Unintentional defamation
- Unintentional interference with intellectual property rights.
However, that’s only half the story. You’ll also need the policy to cover all of the above and more for vicarious liability. The ‘more’ refers to fraud or dishonesty that an employee, agent, or other person commits, but for which you’re not at fault. The ramifications of the above risks can affect your personal and professional life.
Potential exposures for real estate agents
As a real estate agent, you could be exposed to a professional indemnity claim due to:
- Incorrectly preparing paperwork or improperly valuing a property
- Offering misguided or sub-par advice, including to buyers, sellers and tenants
- Not following your client’s instructions and acting in their best interest(s)
- Being negligent in promoting a property
- Poor property management
- Miscommunication between professionals involved in your line of work
- Supplying incorrect industry reports, advice, data and property information
- Overlooking market trends, meaning you mislead a client in their decisions
- Not complying with laws and guidelines
- Delaying telling a seller if, contrary to the contract, the sale deposit hasn’t been received
- Disclosing, or unauthorised use of, confidential information you received while acting for a client.
How does it differ from public liability?
Professional indemnity can be confused with public liability. The latter covers liabilities in paying compensation to a third party who’s experienced injury or property damage arising out of your business operations. For example, where an attendee at your auction injures themselves after tripping over the sandwich board you’ve placed in the middle of the footpath.
To recap, professional indemnity cover protects you against risks arising from offering clients a professional real estate service or advice.
Make sure your cover is up to date
McKenzie Ross Business Insurance Brokers offer a broader service than just supporting you if you need to make a claim. Get in touch so we can assure you that your professional indemnity cover matches your current activities