Risk in the world of real estate

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 does remain present though, is the risk of having an allegation of professional negligence on 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 of how careful you are, the truth is, events like allegations of negligence and being held liable for financial loss can occur to even the most cautious agent.

Professional Indemnity Insurance is an important policy to hold to provide cover in such instances, but it’s not enough to simply hold insurance without having some adequate risk management procedures in place.

Reasons for claims

The most common cause of Professional Indemnity claims for 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

About Aon

Aon is proud to be the new Platinum Partner of the Real Estate Institute of Victoria. Access a range of competitively priced insurance options arranged by Aon today. We’ll work through your industry’s risk and insurance needs – complex or simple, and scan the market to offer you a solution aimed at offering a superior combination of cover, price and service. Get a quote online or speak to an experienced insurance adviser today. Learn more at aon.com.au/reiv

© 2022 Aon Risk Services Australia Limited Abn 17 000 434 720 AFSL no. 241141 (Aon)

Please note: The information contained in this article is general in nature and should not be relied on as advice (personal or otherwise) because your personal needs, objectives and financial situation have not been considered. Before deciding whether a particular product is right for you, please consider your personal circumstances, as well as the relevant Product Disclosure Statement (if applicable) and full policy terms and conditions available from Aon on request. All representations on this website in relation to the insurance products we arrange are subject to the full terms and conditions of the relevant policy.

Aon has taken care in the production of this document and the information contained in it has been obtained from sources that Aon believes to be reliable. Aon does not make any representation as to the accuracy of the information received from third parties and is unable to accept liability for any loss incurred by anyone who relies on it. The recipient of this document is responsible for their use of it. claim, the underlying issue can be deemed as negligence, as the agent has 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 of properties in their advertising, leading to buyers and/ or sellers suffering a financial loss.

Why it goes beyond insurance

You probably hold Professional Indemnity Insurance to cover for claims which might come about as a result 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, there are of course the elements of diligence you perform in your work, such as conducting regular and thorough inspections; following up and completing repairs; ensuring integrity in your advertising and regular communication 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. 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.

Managing risk during economic and political changes

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 changing legislation. Your clients will be relying on you to ensure their decisions are sound and within their legal rights, so it’s important for you as an agent to be the source of expertise.