What is Professional Indemnity Insurance and Why Do Real Estate Agents Need It?

Real estate agents play a role in high-stakes interactions with their clients. Large sums of money are involved in house sales, and when managing premises, the security of high value properties is on the line. The risks at play if agents do the wrong thing by a client (or are perceived to) are significant both to the agent personally, and to the business they work for.

Therefore, it’s vital real estate agents are covered under Professional Indemnity (PI) insurance if they wish to operate as a real estate agent in Australia. Without it, they may pay huge costs to account for losses and/or legal expenses in the event that a client makes a claim against them. Even if they are successful in fighting such a claim, they may still need to pay legal costs, and thus will need PI insurance.

Here we’ll run through in more detail what professional indemnity insurance is, and why real estate agents can’t do without it.

What is Professional Indemnity insurance?

Industry professionals are considered “specialists” in their work, and as such, are held to higher expectations than ordinary workers. The advice sought from professionals is expected to be honest and sound. Services provided should be competent and in line with services advertised and agreed to in a contract. If a professional fails to meet these expectations and a client suffers a loss as a result, they may be sued for violation of professional duty.

In the case of real estate agents, who provide professional advice and/or services for a fee, Professional Indemnity (PI) insurance protects them against claims for losses as a result of actual or alleged negligent acts or omissions when providing real estate agency sales and property management services.

What sort of acts does Professional Indemnity insurance cover?

There are a number of situations when a real estate agent may find themselves facing a professional indemnity claim. These include, but aren’t limited to:

• breach of contract
• allegations of misrepresentation
• unintentional misleading or deceptive conduct
• breach of professional duty
• negligent property management and/or breach of statutory provisions under various laws.

Liability may be direct, or vicarious, meaning that if you are the owner of a real estate agency, you may be liable for the misconduct of one of your employees or contractors.

Examples

These examples shed light on the sort of circumstances that would leave a real estate agent exposed to a professional liability claim.

• A vendor advocate fails to send written notice to the listing agent before the deadline that the consumer was opting out of the purchase and sale agreement as per the inspection contingency in the contract.
• An agent selling a high rise city apartment fails to disclose that the uninterrupted view of the nearby garden would soon be obstructed by another building to go up next door.
• An agent provides a purchaser with a vendor’s report on the property, but fails to ensure the information included in the report is correct. (They also fail to advise the purchaser that they have no independent knowledge of the contents of the vendor’s report.)

Often professional indemnity claims can come as a surprise to the real estate agent on the receiving end of the claim. They may have intended no deceit when providing incorrect advice. Regardless, the claim will stand and the agent will need appropriate support through the process.

Claims cases can be complex, and in certain circumstances, take years to resolve. This can impact business reputation and the bottom line, so Professional Indemnity insurance is vital to ensure operations continue in the meantime.

Do all licensed real estate agents need professional indemnity cover?

Only real estate agents currently providing real estate services for a fee need Professional Liability Insurance. To summarise, you need PI cover* when you are acting as a:

• real estate agent
• stock and station agent
• business agent
• strata and community managing agent, and
• on-site residential property manager.

*Note, this list is not exhaustive, and different Australian states may list additional roles.

You don’t need PI cover when you hold a real estate agent license, but aren’t currently operating in a real estate agent role (for example you’re unemployed, employed in another industry, or working as a trainer/educator only).

Do I need my own cover as an individual real estate agent?

If you are acting as a contractor, you’ll most likely need your own personal professional indemnity insurance cover, unless the agency you are working for includes contractors in their cover. You should check with the agency.

If you’re employed in a real estate agency, your employer’s professional indemnity insurance should cover you too, but again, it’s important to check to ensure it does, and never operate without cover.

Is Professional Indemnity insurance the only insurance I need as a real estate agent?

There are a number of other forms of insurance you should consider if you operate as a real estate agent in Australia. These include:

• Public Liability insurance
• Management Liability Insurance (if you are operating a Real Estate Agency)
• Cyber insurance
• Retroactive cover (which protects you against claims for advice or services provided before a policy was taken out)
• Run-off cover (which covers you for claims that arise after you’ve ceased operating as an individual real estate agent, or as a business).

Often these insurances come bundled together, and some forms of cover might fall under another insurance title, (for instance, Management Liability insurance may include Cyber insurance).

When seeking a Professional Indemnity Insurance quote, ask what bundles are available, as it may work out better for you financially to combine.

Steadfast Eastern Insurance Brokers Professional Indemnity Insurance

As a business owner, proper advice on your insurance could be the difference between being fully protected, paying thousands of dollars in compensation or risking loss of your business.

As a specialist real estate insurance broker, we can help you ensure your business is adequately protected.

For a professional indemnity insurance quote, or more information on what is covered by our professional indemnity insurance, contact Steadfast Eastern.