HomeInvestmentsGetting into Real Estate – What is ‘Errors and Omissions’?

Getting into Real Estate – What is ‘Errors and Omissions’?

Becoming a real estate agent is an attractive second job for many people who want the freedom that comes with being self-employment. In residential real estate, the weekends are when most home buyers are available to look at property, so it is easy to work part-time as an agent in the evenings and over weekends. Many people tend to over-idealize realtor’s job as easy-to-do and overpaid. Yet inexperienced real estate agents spend months if not years showing property but selling none.  It takes time to understand how real estate market works, how to find prospect buyers and sellers and match them so that the deals goes through and you get your hefty commission.

But even as you think you got a hang of it and sell your first, second, third house – there is a chance you can come back to the deal years after the closing because of a serious error on your part. Who would think that as a real estate agent you are constantly at a risk of being sued by unhappy clients…? With the substantial amount of money at stake in real estate transactions, even a minor complain can result in litigation.

Some types of problems that can cause a lawsuit include a buyer believing you misrepresented the property to them. For instance if a buyer moves into a house, then finds out there is a serious plumbing problem, they can sue you as the agent, for not warning them about this problem. Or, if an agent recommends an appraiser and that appraiser does not uncover a property issue that needs to be repaired, then the buyer could sue the agent for the incompetent referral.

Contract issues can also arise, where a buyer or seller claims that you explained something in the contract in such a way as to misrepresent their legal rights. For instance if a buyer signs a contract to purchase a house and then fails to get the inspection by the date in the contract, then the buyer must buy the house as is, instead of asking for repairs before the closing.

As soon as you become an agent, it is important to check into obtaining errors and omissions insurance. This insurance is offered to real estate agents and brokers to protect them against lawsuits and to pay for associated legal expenses in case of litigation. Even in situations where there is absolutely no basis for the claim, an agent must still defend himself if a lawsuit is levied against them. For this reason, E&O insurance makes sense for any agent or broker involved in real estate. There’s always big risk and competition where big money is. No wonder many people try themselves in real estate business at some point of their lives thinking they have little to lose. But only few remain in it for years and really succeed.

Guest Post by Katya



  1. I had planned to go into real estate sales at one point but then I realized that I wouldn’t get paid until I made a sale! That was a few years into college and I had too much debt to choose that career field.

  2. Speaking as a former real estate appraiser, you must have E&O insurance. Like you said it just makes sense, but really the threat of litigation hangs over you all the time.

    Appraisers can be sued up to 5 years after an appraisal is completed. Although I stopped appraising in 2008, many of the appraisals I have done over the years are still in my file cabinet. We have to save our information in case of a lawsuit.

    I am not worried because I have always been a very ethical person. That doesn’t scare me, but I could have made an honest mistake. It is good to know my house or financial future isn’t in jeopardy because of my E&O insurance.

  3. I think it takes a certain type of personality to become a successful real estate agent. You should be very friendly, honest, helpful, and???
    It’s not for me. 🙂

  4. Great information. EEO is essential for almost anyone that provides professional services. It’s not very expensive and helps you sleep at night. Most homeowners policies allow you to add an EEO rider at little cost.

  5. REal estate appears due to the high commision payouts. The reality is there are many many hours spent with no compensation before a deal goes through. Add the risk of lawsuits etc. There is more to this vocation than easy money 🙂

  6. As an investor of RE and possible future properties I would rather NOT be in real estate sales. There is some disadvantage when buying properties. ie you have to disclose you are a real estate agent.Though there are a lot of “weekending warriors” and some of the lack of professionalism in the industry as a whole. Man have I’ve seen some awful RE agents.It could mean you can do very well if you know what yo are doing.

  7. I did not know this, thanks for sharing. you are right in that many likely jump into becoming an agent without fully understanding all that’s involved


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