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Professional Indemnity Insurance for Real Estate Agents

Written by

Shaun McGowan

When a client engages you to sell or let their house, they are relying on you to help them achieve the best possible price, within a reasonable timescale. They can expect you, as a property professional, to give them sound advice on the best strategy and approach to take in preparing, pricing and marketing their property. They have a legal right to rely on your expert advice, and to expect you to act in their best interests at all times.

You have the same duty of care if you are acting for a property purchaser, or if you are offering property management services. If you make a mistake, or if one of your clients considers your conduct to have been unprofessional or not in their interests, they could file a negligence claim against you and sue for damages.

They could claim that:

  • Your advice caused them to receive a lower than reasonable price for their property
  • Your actions cost them to lose out on the sale or purchase of a property
  • You marketed a property inappropriately
  • You acted unprofessionally
  • You did not deliver the services you were engaged to provide

Even if you were relying on information provided by your client, or if they took actions against your advice, they could still make a negligence claim against you if they are unhappy with the outcome.

Why do Real Estate Agents need professional indemnity insurance?

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.

What does professional indemnity insurance cover?

As a Real Estate Agent it is vital that you have both public liability insurance and professional indemnity insurance.

Your public liability protects you if someone has an accident on your premises or in your car, and also covers you for any physical damage you may cause to another person or their property (always a risk while you are on site or showing a property). However, it won’t give you any protection against claims of a financial loss your clients believe they have experienced as a result of your actions or advice.

Your professional indemnity policy covers your legal costs if you have to defend yourself or your business against a negligence claim, whether or not the claim is upheld. PII also covers you for any the damages that are awarded against you if a claim is substantiated, up to the limit in your policy.

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How much is professional indemnity insurance for Real Estate Agents?

The amount you pay for your professional indemnity insurance each year will depend on a number of factors. These include:

  • The amount of cover you wish to take out
  • Your turnover
  • The type of services you offer (sales, letting, property management)
  • Where you are located (you will pay different levels of stamp duty in different states)
  • Whether you have made a claim under professional indemnity insurance in the past

If you wish to include additional features with your cover, such as automatic reinstatement, retroactive protection or runoff cover, you will incur additional costs.

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Professional indemnity insurance case study

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.

List of Real Estate Agency services that need professional indemnity insuranc

As a Real Estate Agent, Business Agent or Stock and Station Agent offering any of the following services you are required, as a condition of your licence, to have adequate professional indemnity insurance cover:

  • Agricultural or pastoral property sales or leasing
  • Business brokering
  • Letting or leasing of real estate
  • Lettings strategy and advice
  • Marketing or advertising property
  • Photographing property for marketing
  • Price negotiations
  • Property auctions
  • Property maintenance
  • Property management
  • Property market research
  • Property valuations
  • Rent collection
  • Sale of real estate
  • Sales strategy and advice
  • Tenancy agreements
  • Tenant selection and vetting

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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