Commercial E&O That Covers Personal Commercial Properties?

Question

Hello Everyone,

I am a new real estate agent and live in Colorado. I am looking for E&O insurance that covers me while I am doing my own commercial deals- I am purchasing an apartment complex (with two other investors).

Does anyone know of a provider that does this? RISC and CRES do not, and I can't seem to find one that does. Ideally, I would like the insurance to also cover me managing my own properties as a broker as well...

Also, could I get your advice on how important is E&O coverage in the purchase of a commercial property? I would imagine it is very important when selling, but is there much liability to the buyer when purchasing?

Thank you all so much for your time and advice.

Warmly,

Maranda

Maranda Robison · Answer

Yes, being the sales agent can definitely pose some issues for personal E&O coverage.

We actually didn't end up moving forward with apartment buildings because of some changes in the investors that we had, so we are currently pursuing a small portfolio of condos and multifamily homes. 4 plexes and smaller are covered under my E&O, so I am covered there.

However, if we did move forward with the apartment complexes, the plan was to get coverage for the company but not get E&O coverage for myself that covered my actions as a real estate agent. I spoke to a couple lawyers and they told me that, on the buy side, you run very little if any risk of being sued, unless your investment partners sue you (btw not giving legal advice- just repeating what I was told). Because I wasn't worried about getting sued by my partners, I was just going to move forward without it. There are also ways to manage risk by having your partners sign lawyer drafted forms that give you additional protection.

Benjamin Fritz · Answer

Thanks @Maranda Robison,  Yes I too am looking to be involved in deals where I am part owner of a property.  I am looking to start a real estate investment company that I can do syndicating through with a group of investors I work with.  I will be mainly focused on Multifamily complexes.  I will however not be the broker on record for the company, but I would be the sales agent though.  So what did you end up doing when you bought the apartment complex with the other investors?

Maranda Robison · Answer

Hi @Benjamin Fritz, thanks for reaching out. I ended up calling one of our E&O companies here (CRES or RICECO) and they gave me a recommendation for a company. My apologies I can't remember the company they recommended, I ended up not moving forward with it. It was quite expensive.

I do want to clarify that the only reason I had a problem was because I wanted to broker my own transaction in which I had an ownership interest. I am not sure what kind of company you are trying to set up, but if you are setting up an employing brokerage, at least in CO, you would not have any trouble finding coverage- CRES covers some, if not all, types of commercial transactions. My understanding is that the broker just cannot own any of the commercial property to be covered.

If you are setting up a company that holds real estate, these you would need a separate coverage to protect the company- the real estate E&O insurance would just cover you as the broker.

I was also told by a couple of lawyers that the risk is pretty low when you are the broker, have ownership interest, and are on the buy side of the commercial transaction, so some people opt to have E&O insurance that doesn't cover their transaction.

Let me know if you have any other questions and good luck!

Benjamin Fritz · Answer

@Maranda Robison, I feel your pain.  I'm trying to set up the same thing.  Here in Texas it is law that we need E&O insurance when starting a real estate company.  And it sounds like we are doing the same thing as far as investing in CRE.  Did you ever find out what you needed to do?  Any direction would be great.  Thanks

Maranda Robison · Answer

Thank you for your responses- let me elaborate.

As you know,  many E&O insurances will cover real estate agents when they sell their own residential property (their primary residence or a rental property). This is important because, since they are both the seller and the real estate agent (representing themselves- the seller) in the transaction, if they, for example, omit disclosing something vital to the buyer that is detrimental to the buyer, the buyer can sue the seller (agent). These lawsuits can be very successful. With commercial property, the risks are even higher.

Some E&O insurances cover the agent when they are buying/selling their own property (and acting as their own agent), and some do not. Most of the ones that do cover the agent, only cover the agent for residential properties, not commercial. I am trying to find an E&O insurance that covers the real estate agent in transactions where they both have a commercial ownership interest in the property and they are the representing agent for their side of the transaction.

For example, I will have 25% interest in a corporation that is purchasing, as its sole asset, an apartment complex. I will also be the real estate agent for the purchase of the property. Since I will be the agent representing the corporation and I have significant ownership interest in the corporation, many E&O insurance companies will not cover this.

Does anyone have any suggestions for an E&O insurance company that covers agents in commercial property deals where they both have an ownership interest AND are the representing real estate agent for their own side of the transaction?

@Jason Bott, did that help as an explanation? I need something to protect me from the other party in the transaction.

Thanks!

Wayne Brooks · Answer

E&O covers errors and omissions committed by someone acting in their professional capacity, Representing Others, not for their own investment activities.

Jason Bott · Answer

@Maranda RobisonYou can not sue yourself or seek damages for your own Error or Omission under your own policy.  That being said, what protection are you looking for when purchasing a property for yourself or an entity your a part of?