The real estate industry has never been known as uneventful. Whether it’s changing interest rates, legislation and rental reform, or even technological developments, it’s an industry that is used to seeing change. The one constant that remains present though, regardless of the developments in the industry, is the risk of having an allegation of professional negligence against you. Whether it’s property mismanagement, misrepresentation or underquoting, the nature of the work you do can sometimes be subject to some serious complexities.

While you might think nothing will happen to you because you are careful, the truth is, events like allegations of negligence and being held liable for financial loss can occur to even the most cautious agent or property manager. Professional Indemnity (“PI”) Insurance is an important cover to hold in such instances, but it’s not enough to simply hold insurance without having some adequate risk management procedures in place. Let’s look at some of the ways claims under PI can come about, and what agents need to be doing to safeguard their practice against the likelihood of having a PI claim brought against them.

Claims against real estate agents can come about due to several reasons, and a single claim can sometimes also have multiple reasons behind it. Most claims under PI will have an element of professional negligence, but there can be other issues at play which can lead to a claim.

The most common cause of PI claims against real estate agents is for property mismanagement, where landlords allege mismanagement by an agent caused them loss of rent, loss of property value or property damage. Property mismanagement claims can also come about as a result of tenants alleging, they suffered an injury due to poor maintenance or mismanagement.

In these instances, while property mismanagement is the cause for the claim, the underlying issue can be deemed as negligence as the agent may have been negligent in not identifying and/or repairing damage. These types of claims can often escalate quickly, with defence costs and compensation easily running into the thousands.

Another common cause for claims made against real estate agents is for misrepresentation, where agents are alleged to make false representations about properties in their advertising, leading to buyers and/or sellers suffering a financial loss. While this type of claim would typically be covered under PI Insurance, remember that insurance is designed to cover your defence costs and compensation in the event of such incidents. It does not cover the time required to have discussions with lawyers, collating evidence and documentation and appearing in court which would be a straining exercise to go through.

You probably hold PI Insurance for claims which might come about because of some of the above events but adopting sound risk management principles to prevent claims in the first place is also important. When it comes to managing risk, it is important to be diligence when performing your work, such as conducting regular and through inspections, following up and completing repairs, ensuring integrity in your advertising and regularly communicating with clients. But of equal importance is the internal aspects within your practice, such as ongoing training of staff; keeping up to date with legislation; thoroughly examining contracts before signing and adequate record keeping procedures – you can read our article on the pillars of risk management here. Putting in place robust risk management practices can not only help prevent claims to start with but can also make a huge difference to the strength of your defence. For example, one of the pillars of risk management is adequate record keeping. If you do find yourself the subject to an allegation of professional negligence, how well your legal team can defend your case will greatly depend on the strength of the records you’ve kept of interactions and transactions with your clients.

As leadership at the federal level changes, and we also head into what some economists have said will be a string of interest rate changes, agents need to be more stringent than ever before to ensure they’re keeping up with changes to policies and legislation. Your clients will be relying on you to ensure their decisions are sound and within their legal rights, so it’s important for agents to be the source of expertise. Also keep in mind if there have been significant changes to any aspects of your business, such as changes to your employees, revenue, the services you offer, or you’ve moved premises, your insurance broker may need to be notified. Staying in regular contact with your broker can help ensure your cover is up to date, and you’re not left with gaps in cover.