What is Errors and Omissions Insurance?
Errors and omissions (E&O) insurance, also called professional liability insurance, protects real estate professionals against claims of negligence, mistakes, or failure to perform professional duties. If a client sues you for giving bad advice, failing to disclose a material fact, making an error in a contract, or failing to perform a service you were hired to do, E&O insurance covers legal defense costs and damages.
E&O insurance is different from general liability insurance, which covers bodily injury and property damage. E&O specifically covers financial losses that result from professional errors. A client who loses money because of your mistake needs E&O coverage; a client who slips on your office floor needs general liability.
Who needs E&O insurance
Real estate agents and brokers: Most states require or strongly encourage agents and brokers to carry E&O coverage. Claims common in this space: failure to disclose known defects, errors in contract terms, failure to present offers, inaccurate representations about property condition or value, and missed deadlines that cause clients to lose deals or deposits.
Property managers: Claims arise from negligent tenant screening, failure to maintain the property, improper handling of security deposits, lease violations, and errors in financial reporting to property owners.
Appraisers: Errors in property valuation that cause a lender to make a bad loan or a buyer to overpay can result in E&O claims.
Wholesalers and investors: Generally, wholesalers and investors don't need E&O insurance unless they're providing professional services (property management, brokerage, consulting) to third parties. If you're buying and selling properties for your own account, general liability and umbrella coverage are more relevant than E&O.
Typical E&O costs and coverage
E&O premiums for real estate agents typically range from $300-$1,500 per year depending on coverage limits, deductible, state, and the agent's claims history. Coverage limits are commonly $100,000-$1,000,000 per claim and $100,000-$3,000,000 aggregate. Higher limits cost more but provide more protection for agents handling high-value transactions.