Estate Agents

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Estate Agents are generally engaged in the business of selling properties but they often are involved in the acquisition of property or land or the renting, letting or management of properties as well. Although estate agents initiate and manage the selling process, the legal side of the transaction is normally undertaken by solicitors. Although the more traditional professions such as architects, surveyors, accountants and solicitors are required by their professional bodies to carry PI insurance, there is no such requirement for estate agents to maintain insurance, unless they are members of NAEA (The National Association of Estate Agents) or ARLA (The Association of Residential Letting Agents). However, due to the increasingly litigious nature of the home-buying process and the introduction of Home Information Packs, estate agents are becoming more aware of the need for Professional Indemnity Insurance.

How do insurers rate a risk and what do they look for?

Size of firm

This is mainly established in two ways, the number of partners/directors and staff andby the gross annual income of the firm.

Qualifications and experience

Insurers need to satisfy themselves that an estate agent is suitably qualified. As no formal training or qualifications are required to operate as an estate agent, insurers will be concerned with finding out if an individual is sufficiently experienced to carry out this work.

Location - Most estate agents work in their local area, unless they are part of a chain. They build up local knowledge which makes for a more consistent analysis of market pricing. It would be a concern if an estate agent in Newcastle, for example, was marketing and selling properties in the South East unless they could show that they have adequate knowledge of the area.

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Property Values

The area in which agents work in will give an idea of average house values but details of the largest valued property sold will certainly be a factor when assessing risk. London based Estate Agents are generally expected to be dealing with higher value property than in the north, however, many parts of the country have pockets of high value property. The same error on the sale of a high value property can potentially result in a far more expensive claim. Furthermore, generally speaking, purchasers and sellers of high valued property can be more demanding as well as more litigious.

Type of work

Insurers need to know what type of work the estate agent is involved in and the split of annual income derived from each discipline

  • Residential and commercial estate agency - The sale function that may be carried out by the estate agent, either by conventional methods or by auction. Claims are infrequent and of low value and therefore this activity is considered lower risk.
  • Residential property letting and management - Activities may involve the letting and management of both leasehold and freehold residential property on behalf of a freeholder. The level of claims from this area of work is fairly high, with many claims arising from “slip and trip” type incidents, but the value is normally low.
  • Commercial property management / land management - The management of commercial buildings including maintenance, services provision and rent collecting. In view of the high value of commercial work, this is seen as a medium risk area.
  • Rent reviews / lease renewals - The owners or tenants of commercial property sold under lease may require the periodic assessment and review of rent being charged. An estate agent may be appointed by either the landlord or the tenant to carry out this function. Medium risk but increasing depending on the size of rents involved.
  • Residential and commercial surveys and valuations - As part of the sale process, estate agents will establish a marketing price for sale, but they can also be involved in the inspection of buildings in order to ascertain their value. Insurers would expect individuals undertaking such surveys to be RICS qualified. Risk is high where the valuation is used for lending purposes (mortgages) and lower for probate, asset or insurance purposes.

    If a principal or employee is RICS qualified, a Surveyors policy wording approved by the RICS is required. Please visit the Surveyors pages of this web site for more details.
  • Provision of Home Information Packs - Estate agents are usually responsible for compiling the information for the packs and the searches themselves and any legal work is undertaken by a qualified professional. Low risk.
  • Auctioneering - The valuation and sale of property and goods at auction. Low risk but increasing for fine art and antiquities.
  • General Insurance/Financial Services/Mortgage Broking - As part of their services, estate agents can arrange insurance or provide financial services or mortgage advice. They would need to be authorised and regulated by the Financial Services Authority for this work. High risk unless the estate agent is acting in an introductory capacity only.

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Home Information Packs

Since 14 December 2007 every home in England & Wales put on the market, no matter what size, must have a Home Information Pack. It brings together information at the start of the process, such as a sale statement, local searches and evidence of title. The Pack also includes an Energy Performance Certificate that contains advice on how to cut CO2 emissions and fuel bills. Estate agents will usually only be involved in compiling the packs on behalf of clients when the local searches and legal aspects have been handled by a qualified professional, so this is considered to be low risk.

Overseas exposure

Does the practice carry out work for overseas clients? Insurers will give careful consideration to such work carried out abroad as it must allow for the local laws and regulations.

Examples of claims

Property management - claim made by blind tenant who fell over collapsed wall, despite requests for managing agent to repair dilapidated wall. Claimant is claiming damages for personal injuries sustained.Property misdescription –  A claim was made by purchaser of property, as property was detailed as having double glazing in estate agents’ particulars, but there was no double glazing. Claimant is claiming cost of installing double glazingLetting agency - Insured did not obtain a guarantor when letting property. Tenant began to pay rent late then defaulted on several payments. Landlord is pursuing the letting agent for the outstanding rent, as the tenant has disappeared.Estate Agent - it was alleged that an Estate Agent purposely under-valued a property so a known acquaintance could acquire it for a discounted price. The seller became aware of the under-valuation of the property and pursued the estate agent for the loss of value in the sale price.

Main bodies with PI rules*

The National Association of Estate Agents (NAEA) is the leading professional body for estate agents. Membership and representation is for individuals rather than organisations. PI insurance is mandatory for principals, partners or directors but The NAEA has no specific requirements on minimum Limits of Indemnity and Excesses but it does require a standard form of cover. The Association of Residential Letting Agents (ARLA) is a professional self-regulating body solely concerned with residential lettings. PI insurance is mandatory for all members. ARLA requires members to purchase limit of indemnity of £150,000 where fee income is less than £150,000. Where the income level exceeds £150,000 the minimum limit of indemnity purchased must be £500,000.

*Current as at April 2009, you should check with the Association for a fully up to date position

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Presenting your proposal for insurance

The presentation of your business to insurers is very important both in respect of the facts i.e. the things for which cover is required, and the way in which you do your business, both of which influence an insurer's perception of your business and the risk it poses to them.

We would always recommend that in addition to the proposal form you are asked to complete, you provide supporting documents with your proposal such as:

  • A CV showing the principals qualifications and experience in the areas of business to be covered
  • Any Terms of Business or terms of engagement you use
  • A copy of your corporate brochure
  • Details of your website
An insurance history listing all material changes to your business since you first had professional indemnity insurance. For example, mention any previous businesses for which you require cover. It is possible you may be asked for a claims history from the previous business or a copy of its last completed proposal form.Don't forget to include the names of any businesses with which you have merged, or any that you have acquired, as these will need historic cover. Likewise you may have ceased to offer certain services for which cover is still required. Keep a written record of all requests for cover to be extended and any historic or material changes to your business. This information can be updated each year and provided as an addendum to the proposal. Any certification the business may have i.e. accreditation by a governing or standards council, is also well worth disclosing.Keep your presentation neat and tidy. Bear in mind that an untidy presentation may be construed as an untidy business. Allow yourself time to complete the presentation and remember that a hard copy always look better that a faxed one sent in at the last minute.The Professional Indemnity Insurance market is relatively small so at the point of renewal, concentrate on asking only one or two specialist brokers to quote. Bombarding the market with requests can result in your proposal being locked out of some markets.Renewal is an ideal time to review your insurance requirements. As your business grows and your contract values increase, it is wise to consider what could go wrong and how much it may cost to settle a claim - and also cover the attendant legal costs. Some policy wordings provide a limit of indemnity with legal costs in addition to the limit. Others provide limits of indemnity which include the legal cost. However, the cost of litigation is high and can eat into the limit of indemnity provided if costs are inclusive.

Many professionals are obliged to carry PI by their professional bodies. Many of these bodies not only have specific requirements in respect of policy wording but also on the limits a professional must carry and the excesses they are allowed. Renewal is an opportune time to check your cover both in respect of your own requirements and those of your professional bodies.

Online Quotes

Whilst we prefer to see a well presented proposal form and supporting documentation we recognise that savings in premium can be achieved via the cost effectiveness of internet based quote engines.  We have an online quote engine which is designed to cater for the basic low to medium risk type estate agents which you will find on our main menu bar.  Larger and more sophisticated businesses would possibly be better catered for via our proposal based broking service.

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