Real Estate Foreign Investment

29 August 2013

In the last 5 years the number of claims received by Aon from the Real Estate industry has not seen significant increases. In fact after a spike in 2011, although the number of incidents reported has risen, those resulting in a claim have decreased.

However, they have observed one type of claim in particular that is becoming more frequent and can be associated with potentially significant cost.

Increasing foreign investment

‘There are many opportunities for foreigners to acquire real estate in Australia. The latest figures from the Foreign Investment Review Board (FIRB) show that in the last financial year foreign investment in Australian Real Estate was worth $5.4 billion. This is a staggering amount compared to $810 million in 2009-2010. As a result our underwriter reports that the number of claims against real estate agents relating to foreign investment has increased’

Melinda O’Connor,
Real Estate Manager Aon

So how does this manifest itself as an actual claim? Increasingly, properties are purchased by an overseas buyer without the purchaser physically inspecting the property. Following settlement the client feels that certain elements during the campaign have been misrepresented, often resulting in a claim against the agent.

Defence costs can run in to tens of thousands of dollars depending on the type of claim. For example, reserves of $80,000 are common. However, cost is not the only factor to consider; a significant amount of time is spent with lawyers in preparing statements which interrupts your ability to run your business.

Reducing the risk of misrepresentation

• Make sure all representations and statements made in the sales process are accurate and from reliable sources.

• Don’t alter the information, even a small change could make the meaning of a sentence completely change, leaving you accountable.

• Include a disclaimer on all information and documentation provided.

Protecting the risk

Your professional indemnity cover is available to protect your agencies cash flow and reputation in this scenario. If the cover has a legal helpline you can also use this to get advice on how to take steps to protect yourself.

Significant Claims

Since 2007 the Aon Real Estate claims team have seen 16 claims of over $100,000 from over 5,000 managed relationships with real estate agents but it is nonetheless a risk. If you should be unfortunate enough to receive a significant claim the cost of insuring yourself will be easily outweighed by the benefit both financially and through the support and advice you receive.

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1800 826 667

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