Professional Indemnity Insurance for Real Estate Agents

To practice as a Real Estate Agent in Australia you require a licence under the Property, Stock and Business Agents Act 2002.

Since January 2013 it has been a mandatory requirement of obtaining that licence that you hold professional indemnity insurance of at least $1m for any one claim, and an aggregate of $3m. These rules were brought in by the Ministry of Fair Trading to protect both Real Estate Agents and their clients, including property buyers and sellers, landlords and tenants.

Professional indemnity insurance guarantees that you will have the resources available to give fair financial compensation to your clients if you do something that costs them money. It also protects you from losing your personal assets, which would be at risk alongside your business assets if you faced a professional negligence claim.

As well as being a legal requirement, professional indemnity insurance is extremely important for protecting your reputation. As a Real Estate Agent you rely heavily on that reputation to bring in business. It is very hard to pinpoint the outcome of your advice, and property transactions can be very emotional for the participants. There is always a risk that a client will be unhappy with the outcome and blame you for it, even if they made choices that went against your advice. Even an unfounded claim against you could do severe damage to your reputation and will have to be defended – and the costs can be substantial unless you have the protection of professional indemnity insurance.

A Real Estate Agent was engaged by a client to manage the marketing and sale of their property. Based on their market knowledge and recent sales in the area the Real Estate Agent advised his client to offer their property direct to market, inviting offers over $550,000. The Real Estate Agent conducted a number of open houses and marketed the property extensively, and the client received two offers on the property. On the Agent’s advice they accepted the highest offer of $560,000.

Three weeks later a property in the same street, of similar size and condition, was sold at Auction for $645,000. The client believed that they had been misadvised by the Agent, and that they could have achieved a substantially higher price for their property if they had adopted an Auction strategy instead. They decided to sue the Agent for negligence to recover what they considered to be their financial losses.

The client’s claim was ultimately rejected in court, as it was shown that the Agent made every effort to market the property fully and that the price achieved had been fair and in line with market expectations.

Although no damages were awarded against him, the Real Estate Agent incurred legal costs of $37,000 in defending the claim and protecting his reputation. These costs were covered by his professional indemnity insurance policy, with an excess of just $[xxx] payable on the claim.