What is causing new E&O claims for realtors? Eric Myers, President of Victor O Schinnerer & Company, one of the largest and most experienced underwriting managers of professional liability and specialty insurance programs in the world, was interviewed by ProgramBusiness.com. Here is what he had this to say…
“There has been an uptick in claims, but the uptick is coming from a new source. Historically, claims are as a result of a buyer or seller alleging wrongdoing during a real estate transaction. And, while these still make up the majority of claims, the change we’re seeing more recently involves claims from banks that own all these foreclosed properties as a result of the housing fallout in the last several years."
“Banks are hiring realtors to sell properties and claims are beginning to rise for their services. Claims against realtors range from allegations that the banks didn’t receive the full amount or not as much money as they thought they should get, to properties that weren’t sold as quickly as the bank expected, costing it money. The allegation is that the realtor did not do his/her job in aggressively marketing the house to get more money. A bank, for example, alleges that it didn’t make the money it wanted because the property was sold too quickly or the transaction took too long, or the realtor rejected an offer and all other subsequent bids ended up being lower.”
Eric explained that they’re also seeing claims from the banks involving property management services performed by real estate firms on foreclosed properties. “The banks are not just asking realtors to sell these foreclosed homes but also to manage them until they’re sold,” said Eric. “This involves doing routine maintenance, such as cutting the grass, shoveling snow, etc. As a result, when something goes wrong, banks are bringing claims against realtors for faulty management. A typical example, let’s say, involves a bank that hires a real estate firm to sell and manage 200 properties in a town. The realtor will go by the properties once a week and perform maintenance, etc. If someone breaks in and vandalizes or damages the house when the realtor is not there, the bank then sues the realtor for failing to live up to his/her property management services and responsibilities. Even if the realtor is not at fault, at the very least these claims need to be defended.”
What recommendations should real estate and property managers undertake? “First and foremost, realtors should be very careful when taking on property management responsibilities. They need to make sure to photograph or videotape the condition of the house when they take it over. If they’re managing a house and the previous tenant ripped out all the copper piping, for example, they need to make the bank aware of this. Documentation is key when it comes to everything that transpires with the property. The more one has documented in notes, with videotapes and photos, the better off he or she is if a claim arises. Realtors must understand what they’re getting into.
“Right now, about 25-35% of all properties in the market are in foreclosures or short-sell situations. Once the bank is involved they have a lot of power so there isn’t much room for a realtor to negotiate the terms of a contract, especially when it comes to the national banks. It’s wise to have a real estate attorney read through the contract and make the realtor aware of all that he/she is agreeing to.”
AMERICAN INSURANCE can provide you quotes from several different Real Estate E&O programs including Victor O. Schinnerer & Co. Schinnerer’s Real Estate E&O product, Realty Choice, was established more than 28 years ago. It provides coverage for the services of a real estate owner – as an agent, broker, property manager, consultant or counselor, auctioneers, and mortgage brokers. The policy can be written for a one-person real estate firm to very large practices with multi-billion-dollar revenues. CONTACT US for more information.
Source: ProgramBusiness.com, New Post - July 11, 2012. Bank-Owned Foreclosed Properties Spark Uptick in E&O Claims for Realtors by Annie George.