You’re working harder than ever—shouldn’t your E&O provider do the same?

Pearl Insurance knows you’ve put in the extra effort to remain viable in this industry, and so have we. For the last three decades, we’ve continually innovated Pearl’s E&O coverage to keep up with the ever-changing demands of the real estate market. And we’ve once again made it new and improved!

We’re so excited to announce major enhancements to our Real Estate Errors & Omissions policy, which Pearl insureds will enjoy right away:

• Environmental Failure to Advise up to full policy limits
• Public Relations Advisory Services
• Lockbox coverage to full policy limits
• Consent to Settle
• Mold Endorsement with increased limits—NEW!
• Subpoena Assistance—NEW!
• Free 3-year Extended Reporting Period—NEW!
• Loss Mitigation Credit—NEW!
• Network and Privacy coverage with a $25,000 sublimit—NEW!
• Deductible Reduction for Early Claims Resolution—IMPROVED! Applies to both defense and damages!
• Open House Property Damage coverage—IMPROVED! Up to FULL policy limits!
• Agent-Owned Property Coverage—IMPROVED! No waiting period applies!
• And many more benefits and NEW improvements!

Pearl E&O Insurance: It’s already robust!

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving a REALTOR^® calendar error to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over negligence.

A Real Estate professional was serving as the commercial leasing broker for a shopping plaza on behalf of the holder of a 15-year ground lease that included an option to renew for four successive five-year terms. The renewal was contingent upon the ground leaseholder giving written notice to the plaza owner nine months prior to the expiration of the lease. As part of his duties, the broker agreed to accept the responsibility of exercising the renewal option as well as those of the six retail tenants in the plaza.

Problem:
The ground lease and the retail leases were not timely renewed.

Mistake:
The leasing broker marked the wrong date in his calendar, therefore missing the deadline.

Result:
Although the first extension did not occur within the time frame allowed by the ground lease, the plaza owner, who discovered the oversight, still accepted the renewal. However, the retail tenants refused to renew their respective leases under the same terms despite the broker’s frantic efforts to salvage the deals. Five of the tenants notified the broker and leaseholder that they would be relocating, leaving much of the property vacant at the conclusion of the lease period. The broker attempted but failed to locate suitable tenants for the plaza, resulting in a significant shortfall in revenue for the leaseholder. A lawsuit was then filed against the broker alleging negligence and sought reimbursement for lost rental income. After several rounds of negotiations, the parties settled the litigation well into six figures.

Prevention:
If the broker took a moment to carefully review the lease agreements and establish an effective calendar diary system, the error could have been avoided. A sound diary system includes the creation of a backup measure in the event the first notification method fails. Furthermore, it’s always a good practice to conduct periodic reviews of your contractual obligations to ensure that they’re well understood and in compliance. Many lawsuits arise over simple clerical errors that cost the real estate community thousands of dollars in legal fees and settlements. It also results in spending time and effort to fend off regulatory complaints brought by unsatisfied clients, not to mention the possibility of license suspension or revocation.

Do you have a similar story involving negligence to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

All too often, real estate prospects look to foreclosures as an easy way to buy property on the cheap. Although there are likely decent foreclosure deals available, purchasing a foreclosed home can come with a fair amount of headaches. Keep these in mind if your client decides to go ahead with acquiring a foreclosure.

1) Get it inspected by a professional.

Stipulate to your client that they need to get the property checked out by a certified professional home inspector, and don’t bid on houses that aren’t available for inspection. Don’t let your client base their buying decision on appearances alone; the home could have mold, pests damaging its structural integrity, an insulation problem, shoddy construction, asbestos … you name it. Your client needs to know how much work (and money) they will need to put into the home up front.

2) Consider factors that may have led to the foreclosure.

Is crime on the rise in the neighborhood? Are the schools not making the grade? Is the view not so pleasant? How long has the home been empty? Are there plenty of other foreclosures in the area? Foreclosures aren’t always due to a lack of money or budgeting skills; maybe the previous homeowner bought the house without realizing there was a particular blight on the property.

3) Be cautious if the house is currently occupied.

Keep in mind that some people involved in the foreclosure may be living on the property and may be difficult when it comes time to leave. Even with title in hand, your client could have a hard time evicting the unwanted tenants. And once they do leave, they may have retaliated by destroying the property. (This may not be an issue in certain areas.)

4) Advise your client against flipping.

Unless your client has an arsenal of cheap contractors and materials at their disposal, there always seems to be pitfalls along the way that end up costing more than the person looking to make a quick bundle bargained for.

5) Recommend to buyers that renovations are within the their budget.

Even for properties needing a seemingly modest amount of renovation, there’s usually more work and money involved than planned. In order to make the most of the foreclosure’s bargain price, the buyer should not go into further debt by taking out loans and losing money on interest. Have a home inspector detail all work needed and make sure the buyer has enough cash to fix it all.

6) Recommend they find a reputable lender.

The wrong lender might not spend as much time on a foreclosure case as on a standard real estate purchase, because they stand to make less money on the former. A good lender will research what your client’s best option is. Tell your client to ask a lot of questions—the lender should explain everything to your client very clearly. You should advise them to meet with a real estate attorney as well.

Pearl Insurance is a nationally known broker, marketer, and administrator that specializes in the design and administration of quality insurance plans for associations, affinity groups, unions, and large firms. In addition to providing real estate professionals with quality products and services for 30 years, their partnership with the XL Insurance companies (through Indian Harbor Insurance Company and Greenwich Insurance Company) solidifies their strength, allowing them to offer association members an A rated (by A.M. Best) E&O program. For more information about Pearl’s sponsored E&O programs, call 800.289.8170.

Information provided within this article is not to be taken as legal advice and is to be used for educational and illustrative purposes only.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® acting outside of your expertise to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over performing a function that is outside of your realm as a real estate professional.

A Real Estate agent listed an older residential property that needed a roof replacement because water was penetrating the attic and running down the walls. As part of the marketing strategy the sellers agreed with the agent that the best way to sell the home for a better price would be to have a new roof installed. In addition to fixing the water intrusion problem, it was believed that the enhanced curb appeal of the property would likely garner more interest.

Problem:
The contractor that was hired to do the work was not fully paid by the sellers when the work was completed.

Mistake:
After the marketing strategy was agreed to, the agent decided to select and hire the roofing contractor on behalf of  her clients so that they could focus on prepping and painting the water stains on the interior walls of the home. The sellers provided a check to the agent for the down payment required by the roofer, but it was the agent who signed
the contract order.

Result:
When the project was close to completion, a potential buyer tendered an offer on the property that the sellers quickly accepted. However, when the contractor wasn’t paid by the sellers for the balance due, he filed a mechanic’s lien against the sellers and the real estate agent for non-payment. The buyer then sued the sellers for specific performance and
demanded that either they or the agent pay the contractor to lift the lien. Following a two-month delay in the closing, the matter was resolved after the sellers and agent agreed to contribute equal shares to pay the contractor.

Prevention:
An agent should never select and hire any vendor to do work on sellers’ property—and should certainly never sign a work order on their behalf. By doing so, an agent becomes contractually liable to the vendor and may, as in this case, become the object of litigation when a buyer of the property attempts to enforce a Purchase Agreement. It’s also important to remember that most, if not all, real estate errors & omissions policies don’t provide coverage for claims based on or arising out of liability of others assumed under any contract or agreement. Making the simple decision to leave contractor selection and engagement to a homeowner will increase your chances of avoiding litigation from both the contractor and any potential buyer of property.

Do you have a similar story involving acting outside of your expertise to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Do you or your clients want to do some remodeling, but need to make sure the money you spend will pay off in the long run? Here are six ways to ensure a remodeling project is worth your time and effort, courtesy of Josh Garskof of Money Magazine.

According to a study from Remodeling magazine, the average return on value for an upgrade declined from 87% in 2005 to 64% in 2009. But these six new rules will help you maximize your return on your remodeling investment.

Rule No. 1: Repairs get the biggest returns

The smartest money now goes into “undeferring” needed maintenance. That’s because while buyers might appreciate enhancements like Jacuzzis and Sub-Zeros, they won’t tolerate a house with a leaky roof or antiquated plumbing. “If a property is known to have issues, today’s buyers won’t even look at it,” says Austin real estate appraiser Jim Amorin. And trying to keep problems a secret can cost you big-time. If buyers discover them during inspection, it’s now common practice to ask sellers not only to pick up the tab for the repair but also to pay a penalty to compensate the buyer for the inconvenience of having work done. So the $20,000 you saved by putting off a roof repair, say, could turn into a $30,000 credit to the buyers at closing, says Amorin.

Rule No. 2: Remodeling beats adding on

McMansions have gone the way of the SUV—and large additions don’t pay off either. “There’s been a fundamental shift toward quality over quantity,” says Warwick, R.I., real estate agent Ron Phipps. Having a big, formal living room plus an everyday family room is less desirable than having one multi-use common space. So rather than adding on, you’re better off repurposing existing square footage by reconfiguring the floor plan or capturing unused basement or attic space. Want an eat-in kitchen? Knock down the wall between the kitchen and dining room ($2,000 to $8,000, depending on whether it’s load-bearing or contains plumbing). That will instantly create a large eat-in kitchen and give the whole house a more open feel—without a huge investment to make up at resale.

Rule No. 3: Eco-friendly upgrades can save cash

Some green improvements pay you back long before you sell your house. Install energy-efficient features, such as EnergyStar appliances and extra wall insulation, and you’ll see lower energy bills every month. Add in the federal tax credit of up to $1,500 that lasts through 2010, plus many local rebates and tax incentives (see dsireusa.org), and the work may pay for itself in just five years. Green features are also increasingly a selling point, says Phipps. “Most people in the market right now are first-time homebuyers in their thirties, and they’ve been raised to care about carbon footprints and being ecofriendly,” he says. The best way to go green is with a while-you’re-at-it job: When it’s time to replace your furnace, for example, upgrading to super-efficiency might add only $500 (after tax credits), compared with standard new equipment, but it will save you — and your buyers someday — $150 or more in annual heating costs.

Rule No. 4: Tech infrastructure trumps cool gadgets

Home electronics seem like a deal, since prices have fallen about 50% over the past three years and continue to drop, according to Stephen Baker, president of industry analysis at NPD Group, a market research firm. Still, that doesn’t change the fundamental problem with expensive built-in technology: Put in a $10,000-plus dedicated home theater today, and something better will come along tomorrow and make your system look as if it’s from the Mesozoic Era. With buyers seeking any excuse to low-ball their offers, they’re not going to reward you for an out-of-date system. Tech infrastructure is different, however. Anytime you’re opening up walls for a construction project, have cabling and Ethernet ports installed. At about $80 a room, it’s a low-cost way to provide the capability for whatever technologies come along.

Rule No. 5: Let the Joneses be your guide

During the boom, you could be the first on your block to have a luxury kitchen, spa bathroom, or in-ground pool and count on others following suit. And even if the neighbors never took your lead, there was plenty of equity growth to cover your costs. Nowadays that fudge factor is gone. “You really have to keep your house’s amenities in line with the neighborhood now,” says Kermit Baker, director of the remodeling futures program at Harvard University’s Joint Center for Housing Studies. If other houses on the block have real marble countertops, by all means add one to your house, but if everyone still has faux blue-marble Formica from the ’70s, you’re not getting your money back. Also, keep your projects design-neutral so they’ll appeal to the greatest number of people. Choose neutral colors and traditional electrical and plumbing fixtures unless your house has a modern architectural style.

Rule No. 6: The new payback time is five years

As with any volatile investment, the longer your time frame, the lower the risk. Don’t take on a big project if you’re likely to move in less than three to five years. There’s just too much chance that any money you put in—aside from necessary repairs or superficial cosmetic work—could be lost while the housing market continues to meander. But if you plan to stay awhile, don’t delay starting a project. Home improvements are a bargain right now, with contractors bidding 10%, 20%, even 40% lower for the same work than just a year or two ago, says Bernie Markstein, senior economist for the National Association of Home Builders. Grab them while they’re hungry for work and make it clear that you’ll be getting multiple bids so they’ll be motivated to undercut one another’s prices. You’ll fulfill the first rule of investing: Buy low. Then hope that when you’re ready to move, you can sell high.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® misrepresentation to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over not following standard office procedures.

A Real Estate agent listed a residential condominium in an age-restricted community that required, through its homeowners’ association (“HOA”) covenants, that at least one person residing in each unit must be at least 55 years old. Fortunately for the agent and his seller, he was able to sell it quickly to an out-of-state couple who met the age restriction requisite and who planned to live in the property after their retirement two years later.

Problem:
The buyers intended to have their granddaughter live in the property until they retired while she attended a nearby university.

Mistake:
Before the property went under contract, the buyers questioned the agent on whether the restrictive covenants would allow this living arrangement. The agent informed his clients that it would create no problems since the buyers, who would be the actual owners of the unit, satisfied the age condition.

Result:

Soon after the close of escrow, the buyers’ granddaughter moved into the unit and applied for a parking permit only to be informed by the HOA that she and her grandparents were not in compliance with the age restriction covenants since she, as the only resident, did not meet the age requirement. The HOA then declared that she would have to vacate the property. And after unsuccessfully pleading with the HOA Board of Directors to waive the age restriction, the buyers sued the real estate agent, his broker, and the seller alleging negligent and intentional misrepresentation and demanded that they provide alternative housing for their granddaughter until she graduated from college. Following extensive negotiations, the matter was resolved.

Prevention:
The agent incorrectly assumed that there would be no problem with a college-age woman occupying the unit as long as the owners met the age requirement. To complicate matters further, there was a dispute as to whether the agent actually provided a copy of the HOA covenants to the buyers before they executed the Purchase Agreement. If the agent was able to demonstrate that the buyers acknowledged receipt of the covenants in writing, he would have been able to put himself and his broker in a better position to defend the case. Having the ability to prove that the buyers had the opportunity to review the HOA documents would have certainly helped in that endeavor.

Do you have a similar story involving misrepresentation to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Pearl Insurance Risk Management Expert and Corporate Training Manager Paul Espinosa recently spoke at the Greensboro Regional REALTORS® Association Luncheon on March 1, 2011. In the following video, he offers his top five problem areas for real estate agents:

On a football team every player understands their role. If there is confusion, there is loss of opportunity. The same goes for sales, says Manny Schatz, principal of Professional Builders Services.

Schatz and sales manager Cyd Vacio co-presented at the International Builders’ Show in Orlando Wednesday, describing the role real estate practitioners play in serving buyers while divulging essential tips on how to succeed in new homes sales.

Here are their 10 rules to follow:

http://www.realtor.org/RMODaily.nsf/pages/News2011011302?OpenDocument

1.  Why is it so important to document your files, keep notes, and maintain records? When you are sued by your clients possibly years after the transaction and they have selective memory—this way you have documentation on the advice and counsel you gave them (admissible evidence). It also helps you remember what you did and what you said. Pride of authorship (specificity) is the key. Use confirming letters, “chron logs,” emails, mobile phone logs, etc. Get key points in writing and do so before escrow closes. Treat your files as if you will get sued. Recognize that the statute of limitations for fraud (in California) is three years and four years for breach of fiduciary duty; both from the date of discovery.

http://realestateeo.com/extras/lisa-riggins-disclaimer.html

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® negligence to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a court battle over not following standard office procedures.

A Real Estate agent listed an owner-occupied, two-family residential property with the sellers residing on the main floor and tenants residing in a ground-floor living unit. The residence was sold rather quickly due to its appeal to investors seeking a steady flow of revenue from the long-time tenants, who expressed a desire to remain there.

Problem:
On numerous occasions over two decades, the City notified the sellers that the property did not meet the zoning requirements because the ground-floor unit had been constructed without a permit and was in violation of City Ordinances and Federal Flood Insurance regulations.

Mistake:
When the agent entered into the Listing Agreement with the sellers, they provided him with copies of documents relating to the property, including the most recent non-conforming notice from the City, which also stated that the bathroom and kitchen on the ground floor had to be removed, along with the tenants. However, the agent did not take the time to review the material and simply placed it in his transactional file.

Result:
Soon after the close of escrow, the buyers applied for a permit to complete renovations and learned from the City Zoning and Planning Office that the property was not in compliance. The buyers then sued the sellers and the real estate agent alleging breach of contract, negligent misrepresentation, fraud, and unfair and deceptive trade practices.

They sought damages for lost income, the removal of the kitchen and bathroom, and diminution of value relating to the amount paid above the true market value and the deficient square footage. During the early stages of litigation, a copy of the City’s non-conforming notice was discovered in the agent’s transactional file. The case was settled shortly thereafter.

Prevention:
The agent was one of the leading producers in the marketplace and had successfully closed numerous transactions over his 25-year career. But in this case, the agent’s success led to complacency, resulting in his failure to follow his real estate office’s pre-established procedure of reviewing all documents prior to marketing and advertising property to the public. A simple review would have alerted him to the potential disclosure issues and that his clients were not fully forthcoming about the dwelling’s status. The real estate broker also learned a valuable lesson to make sure that he, too, should follow his own procedures of reviewing the work product of his agents so that situations like this can be avoided.