Am I Covered if I’m Listing or Buying My Own Property?
REIX is often asked, “Am I covered if I’m listing or buying my own property?” You might have heard the saying “A lawyer who defends themselves in court has a fool for a client”. Does the same apply to a real estate practitioner? Whether it does or not, I will leave for you to judge, but we’re here to bring some clarity to the insurance implications as it applies to this situation.
When REIX was being created, and the policy wording was drawn up, our insurance consultant advised that no professional liability insurance program covers claims that are not arms-length. In other words, claims on dealings that they had a personal interest in were to be excluded from coverage. This means, if you’re buying or selling your own property, you’re not covered.
The easiest way to think about this is to remember that REIX coverage is not for sellers or buyers, but for you as a neutral third-party. When you are the buyer or seller, you are no longer a neutral third party because you have aa personal stake. One licensee had a good term for this: “It’s called insider trading!”
What if I List My Property with Another Licensee?
No, you are not. You are still a seller in this instance. REIX does not cover sellers. The licensee that took the listing is covered as long as they have no vested interest in the property. It is a risky idea to list your property with another licensee, and here’s why: If the buyer sues the selling and listing licensees, then REIX, due to its fiduciary duty to defend the listing licensee, would have no choice but to sue the selling licensee. That would then mean that the seller/licensee would be defending two lawsuits instead of one. One from the buyer and one from REIX.
What About Brokerage Coverage?
Does the brokerage have an interest in the property? If not, the brokerage does have coverage, despite happening to have the individual selling the property registered with them. The exception to this is when the broker/owner is selling their own property while influencing the mind of the brokerage. This will cause no coverage for the brokerage, even though it may technically be a separate entity.
Is REIX Against Licensees Buying or Selling Their Own Properties?
No, we are not! Go ahead… just remember that you are not covered for errors and omissions insurance on that sale. REIX simply wants those who trade on their own behalf to be mindful of the exclusions in the E&O policy. Remember that being a licensee means that a much higher degree of disclosure is imposed on you when selling your own properties, so disclose everything you know no matter how insignificant you think it might be.