When you’re running a brokerage, every agent under your license represents both opportunity and liability. Matt Difanis, broker-owner of Max Realty Associates and former Illinois REALTORS® president, says the key to protecting your business is in understanding your safety nets—especially your errors and omissions (E&O) insurance—and the policy’s limits.
“Your E&O is your biggest risk mitigation tool,” Difanis said at the most recent Broker Power Hour hosted by the National Association of REALTORS®. “But it won’t cover everything—especially if an agent steps outside the scope of their license or commits an intentional bad act.”
Know Your Coverage Limitations
E&O policies are designed to protect against mistakes made within the scope of licensed real estate activities. That means, however, E&O insurance won’t protect a brokerage against agent activity that falls outside of those activities. If an agent decides to “play home inspector” or “act like a lawyer” and give advice to potential buyers outside their realm of expertise, Difanis says, this is when brokers could face liability issues.
For example, if an agent erroneously steps into the role of surveyor or roofer, “suddenly you’ve got a problem your insurance may not cover,” he says.
Brokers must understand exactly what’s covered in their E&O policies and have a pulse on how the agents in their office are conducting themselves in the field. As the broker, it’s also your responsibility to make sure your agents have a clear understanding of how E&O policies protect them, as well, and it’s important that they know your expectations.
Broker takeaway:
- Review your E&O policy annually and note exclusions.
- Use your E&O carrier’s training resources to help agents understand coverage boundaries.
- Relay your expectations to your agents.
Use Your Carrier as a Training Partner
Training is one of the best ways to ensure your brokerage is protected against intentional or inadvertent liability issues that agents might present.
“If you’re looking for ways to train on broker risk reduction, one of the best areas is your insurance carrier,” Difanis says. “That is what they do.”
Many carriers will send trainers to your office or provide claim-prevention materials tailored to current risks. The questions they ask in annual E&O questionnaires, Difanis says, are a “treasure map” of what they consider high risk.
Broker takeaway:
- Ask your E&O carrier about current top claim sources.
- Incorporate carrier-led training into your annual education calendar.
Keep Compliance Human
One of the real challenges to managing a brokerage is “supervising people who are somewhat immune to supervision,” Difanis says, but when it comes to compliance, brokers have to be the enforcers. Compliance enforcement isn’t just good for the brokerage, it’s good for the agents, too, as it helps protect their business. This should be communicated to agents.
Difanis noted that different business models will require different methods of compliance enforcement, especially in the age of virtual brokerage models where many agents might be scattered far and wide. Still, that doesn’t mean a broker of such a model is off the hook when it comes to compliance.
“You've got to come up with a model that provides supervision, number one, so you don’t get sued or lose your license,” he says, and second, the effort needs to be proactive so that when the inevitable state licensing authority comes through with an audit, you’re ready.
Automated compliance systems, such as transaction coordination software that sends alerts when disclosures are required, can be useful and help create efficiency, but Difanis cautions against “mindless compliance enforcement.” Such enforcement causes issues on two fronts: There’s no human element for accountability, and an automated system that doesn’t account for exceptions can cause more issues. Because brokers are copied on several DocuSign emails every day, he says, they might not know when an item needs special attention.
Broker takeaway:
- Pair compliance systems with personal communication from a staff member to create accountability.
- Train staff members to confirm exceptions and work with agents on them rather than relying on the automated systems.
Train for the Current Moment
Brokers should stay “dialed in” to emerging risks and take a proactive approach to training agents, Difanis says. Providing agents have the most current information is one of the easiest ways to mitigate risk. Changes to license laws, local ordinances or the Code of Ethics should prompt immediate training updates.
“I watch our state association’s legal hotline and monthly updates,” he says. “That’s how I know what’s percolating right now so I can address it before it becomes a problem.”
Broker takeaway:
- Monitor your state association’s legal updates and hotline trends.
- Adjust training topics based on emerging risks.
Supervise Without Overstepping
Even though agents legally have to work under a brokerage, it’s important to remember that they’re not employees and shouldn’t be treated as such. Still, supervision is necessary, especially when it comes to compliance. The balance is delicate, but as the broker, you must remember your top priority is protecting the brokerage.
“If your firm is comprised of independent contractors, you cannot, of course, say, ‘here are the hours you will report to work.’ But it does not mean you cannot set up mandatory training,” Difanis says.
He recommends flexible delivery—Zoom, recordings, quizzes—so all agents can get critical information without violating contractor status.
Broker takeaway:
- Offer multiple formats for mandatory training to give agents the best opportunity to attend.
- Keep records of participation to document supervision.
Standardize Policies and Agreements
When policies are clear and documented, your agents are better equipped to understand expectations, and you’re in a better position from a compliance and liability standpoint. Rely on your state and local licensing laws to guide your policies and documentation, Difanis suggests.
A comprehensive office policy manual and signed independent contractor agreements (ICAs) set expectations and protect brokers during audits or disputes.
“We migrated to annual ICA renewals, so everything is on the same cycle,” Difanis says. “It’s more work at once, but we control when it happens, and we know exactly who’s missing paperwork.”
Broker takeaway:
- Align policy manuals with state licensing law.
- Keep all ICAs signed, updated and accessible.
