In real estate, every transaction carries a certain degree of risk. Clients depend on agents not only to facilitate deals, but also to provide accurate advice that can potentially shape major financial decisions.
But what happens if that advice turns out to be wrong, even if it’s been provided in good faith?
That’s where Professional Indemnity insurance can help.
Real estate agency insurance case study
Could this happen to you? This case study involving a property investment sales agent took a turn for the worse when the advice they received – and consequently passed onto their clients – proved critically inaccurate.
The background
A property investment sales agent was engaged by a third party to assist with the acquisition of a block of land.
The sales agent specialised in helping clients secure sites for duplex developments, identifying suitable allotments where clients could maximise their returns through dual-occupancy projects.
The land the agent’s clients were interested in was advertised as being “duplex suitable”.
They specifically wanted to build a duplex on this piece of land and, to confirm its potential, the investment sales agent held several phone discussions with both the client and the selling agent.
Based on the selling agent’s assurances, as well as their claimed track record of successful duplex sales in the area, the investment sales agent recommended the block to their client as being suitable for a duplex.
The problem emerges
Unfortunately, what seemed like a straightforward development opportunity quickly unravelled.
After further investigation with the local council and a town planner, it became clear that the land could not support duplex construction.
The block was a rear-loaded allotment, and as a result, access restrictions made a duplex build unfeasible.
The key issue here wasn’t dishonesty or negligence on the investment sales agent’s part.
The investment sales agent acted in good faith, trusting the representations of the selling agent and sharing that information with their client.
However, good intentions didn’t change the outcome.
Although the agent acted in good faith, relying on information from the selling agent, the advice passed on to the client ultimately proved inaccurate.
The financial fallout
The financial consequences for the client were significant.
By the time the development opportunity collapsed, they had already incurred substantial costs, including:
- Stamp Duty on the initial land purchase.
- Legal fees associated with both buying and later reselling the property.
- Real estate agent commissions on the resale of the land.
- Bank costs, including mortgage interest and lender’s mortgage insurance (LMI).
All told, the client’s losses amounted to around $30,000.
While the investment sales agent had not acted out of malice, the client was still forced to bear the financial burden.
Professional Indemnity insurance to the rescue
When the client’s losses came to light, a professional negligence claim was made against the investment sales agent.
This is the kind of scenario that can threaten the career and future business viability for agents who don’t have adequate protection in place – regardless of whether the allegations made against them are false or not.
In this case, the investment sales agent had Professional Indemnity insurance.
Their insurer investigated the issue and recognised that responsibility did not rest solely with the agent, noting the selling agent’s role in providing inaccurate information.
Because of this, they granted indemnity under the Civil Liability section of the policy.
The insurer paid a total of $17,000, which included both legal defense expenses and a partial payment toward the monetary damages owed to the client.
For the insured agent, this outcome demonstrates the real value of Professional Indemnity insurance.
Instead of having to wear the full cost of legal fees and potential damages, their policy provided financial protection and peace of mind during a stressful and complex dispute.
Case study takeaways
This case highlights some important lessons for real estate professionals.
1. Good faith isn’t always enough
Even when you act honestly and rely on information provided by other parties, you can still find yourself facing claims if things go wrong.
Clients look to agents as trusted advisers, and when their expectations aren’t met, financial compensation often becomes the focus.
2. Always verify critical information
Third-party assurances, such as those from selling agents or developers, should always be verified when they form the basis of your advice.
Independent checks with councils, planners, or other authoritative sources can save both you and your clients from costly surprises.
3. Document your advice and conversations.
Maintaining clear records of what advice was given, who provided key information, and any disclaimers issued can make a significant difference in defending a claim. Good documentation shows you acted responsibly and transparently.
4. Professional Indemnity insurance can give you peace of mind
As this case demonstrates, Professional Indemnity insurance can mean the difference between a stressful but manageable situation, and a career-threatening financial blow.
Legal fees alone can run into the tens of thousands of dollars, even when you’re not fully at fault.
Having Professional Indemnity insurance can help to provide peace of mind, so you can focus on your job and continue providing excellent services to your clients.
Get covered in minutes with BizCover
The real estate industry can at once be demanding, tumultuous and exciting.
Business owners in the real estate game often must wear many different hats to support daily operations: managing client relationships, hunting for new leads, organising marketing efforts, arranging inspections and open homes, negotiating offers, training new staff members… the list goes on.
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By jumping online, real estate professionals can quickly and easily get multiple quotes from leading insurance providers in Australia.
Visit BizCover.com.au today to find a Professional Indemnity policy that suits your needs.
Disclaimers
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording or Product Disclosure Statement (available on our website). Please consider whether the advice is suitable for you before proceeding with any purchase. Target Market Determination document is also available (as applicable).
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The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. BizCover is not authorised to provide claims handling and settling services. This means we cannot assist with, manage, or settle any claims on your behalf or on behalf of your insurer. Coverage for claims on the policy is determined by the insurer, and not BizCover.
