Understanding the risks for Real Estate Agents

For the majority of people, purchasing a home is one of the biggest financial investments they will ever make. As a real estate agent, you can find yourself in very hot water if things don’t quite go as intended. And as much care as you may take, there is a risk you you could encounter a lawsuit when things don’t go to plan. 

Real estate agents encounter a wide variety of risks  daily, ranging from lawsuits resulting from injuries sustained during viewings to legal action arising from post-purchase issues with the home. That’s why it is  important that you have the right level of business insurance in place as part of your overall risk management strategy.  

Still not convinced? Here are some of the risks real estate agents encounter in their day-to-day operations and how you might take them into consideration in your risk management approach. 

In the Real Estate Industry, Professional Indemnity Insurance provides essential financial protection against potential losses arising out of acts, errors and omissions from professional services provided.

The REINZ Code of Practice stipulates a minimum of $1m cover for professional indemnity but the level of cover must be sufficient to protect the clients’ interests given the nature of properties being sold. The policy should cover all individuals and agents in the business.

Given this requirement it is worthwhile looking at your level of cover

While the chance of making a claim is actually relatively low for many agents, the risks themselves are some of the highest of any industry with individuals often facing claims of many millions.

There are a number of risks that a real estate agent can cover with a professional indemnity policy such as allegations of misrepresentations, giving false impressions, non disclosure of property details, breach of contract, errors in transaction documentation, conflicts of interest and allegations of fraud.


A claim of misrepresentation can see you facing a multimillion dollar law suit. If, while selling a property you make a statement which turns out to be false (or you give a false impression or even withhold information which should by law or in fairness be disclosed), you can be found liable. The more valuable the property, the larger the potential claim.

For example, an agent advertises a property. They use a large sign stating “739sqm fully serviced and sewered section in corner location. Ready to build on.” They sell the house and the new owner transports a house onto the property. The new owner contacts the Water Corporation and finds that there is actually no water connected to the section.

There are many obligations on real estate agents to exercise due diligence and properly research a property before marketing it. In many cases, it’s the buyer’s responsibility to do research and conduct inspections to make sure that the property is to their liking. In this case however, the misrepresentation is plainly stated in the advertising material and liability on the real estate agent is easy to see.

In many real estate legal cases, even if you aren’t found liable, the legal costs can be very high as the case can drag on for years.

Non disclosure of Property details

While in most cases the responsibility falls to the buyers to perform their due diligence on a property, if the agent is aware of a defect or something that can affect the outcome of the sale of property the agent must communicate it as soon as the information arises or face possible liability for any issues.

For example, if the agent was aware of a plumbing issue and flooding in the lower level and garage of a property but failed to disclose this to a client they can seen as liable and face a lawsuit.

Conflict of Interest

For a real estate agent, a conflict of interest is where they have a personal interest in their advice or services given, or the interest of one agent’s client comes into challenge with the interest of another of their clients.

For example, an agent is acting as a Buyer Agent for their client at an auction, but fails to disclose that an associate (i.e a spouse, parent, sibling, child, organisation the agent is a part of etc.) is also bidding on the property, they might be liable if they are unable to win the auction for their client.


Injuries sustained because of accidents during viewings  

If you’re running an open house in a popular part of town, it is likely that a large number of people will attend the event. However, the higher the number of attendees, could contribute to a  higher  risk that someone may sustain an injury.  

Make sure you keep the number of people circulating the house at a safe level and monitor children closely.  

It is important that you have full risk-management processes in place. The long and the short of it is that you could be liable if someone is injured at a property you are managing Having the right kind of business insurance in place for your real estate business could protect you in the event of a claim. 


Client lawsuits 

If you do not disclose property defects to buyers that you are aware of or inadvertently share information that is not accurate, you may be at risk of a claim occurring. Professional Indemnity Insurance can protect you against the risks associated with the provision on real estate services. 


Data protection breaches 

You may be unaware that your risks extend beyond the properties that you are trying to sell. You are also responsible and accountable for the client and customer data you hold on file. If you store confidential data electronically, you may want  to consider protecting your business with Cyber Liability insurance to protect you against the costs related to  of data loss and other cyber & privacy breaches. 


Codes of ethics violations 

As a real estate professional, there are professional standards and ethics that you must follow. If you violate these standards in any way, you may encounter a claim. In addition to your business insurance, you should ensure you are always honest and transparent with your customers and share all terms, conditions, and agreements in writing. 

Above all else, make sure you are fully covered for all eventualities with the appropriate kinds of business insurance to protect your real estate business. 


* This information is a general guide only and does not take into account your objectives, financial situation or needs and should not be relied upon for advice.  As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.  

Compare multiple quotes online in minutes

Compare FREE quotes

Compare multiple quotes online in minutes

Try NZ's #1 comparison and buy site for business insurance.

Compare FREE quotes

Popular Searches