Understanding the risks for Real Estate Agents


Understanding the risks for Real Estate Agents

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.

This is general advice only.

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