Every small business can benefit from having a risk management framework in place to minimize risk, liability and lawsuits. But for real estate brokers, it’s truly essential to protect you and your business, as well as your team.
If you have multiple staff members (or contractors), many clients, and a fast-paced business, it can be hard to keep on top of everything as a broker.An innocent error or minor oversight by you or someone on your team could result in a lawsuit against your real estate business. Even with the best of intentions to keep your team and business on track, sometimes things can ‘slip through the cracks’.
Having a solid risk management framework in place takes the guesswork out of managing risk for your real estate business. It reduces your chance of facing a lawsuit, and allows you to be proactive instead of reactive.
Here are 5 tips to create an effective risk management framework for your real estate brokerage…
1. Develop a Risk Register
The key to effective risk management is identifying and understanding what risks your business faces. The main causes of lawsuits in real estate are things like:
- Failure to disclose information about a property to a prospective buyer
- Advising outside the scope of real estate expertise
- Misrepresentation (even if it’s accidental)
- Injuries or accidents at open houses or showings
- Breach of confidentiality or privacy
Think about what you and your team do every day in the course of your real estate business:
- Develop a risk register to record all possible risks.
- For each risk, identify how likely it is that the risk will occur and how serious an impact it would make on your business. This will help you to prioritize each risk.
- Next, come up with mitigation strategies to avoid each risk, starting with those that are most likely to make a major negative impact on your business.
Of course, writing strategies down on paper to help minimize risk in your real estate business is just step one. Step two is implementing them. But, the implementation of all of your risk mitigation strategies is essential to ensure your business and team are fully protected.
2. Create Policies and Procedures
One way to help manage risk at your real estate brokerage is to ensure you have standardized policies and procedures for your team to follow. These policies and procedures should set expectations for your team. They can help solve problems and prevent disputes. Your policies and procedures manual should cover things like:
- Records management
- How real estate agents should communicate with clients and document important client instructions
- Confidentiality and privacy
- Open houses and showings
- The role of your team in risk management (for example, requirements to undertake risk assessments, etc)
- Social media, communications and PR
- Sales policies and processes to be followed
To create a policies and procedures manual for your real estate business, check out the NAR website, which offers a range of articles and resources.
3. Review and Assess Your Risks Regularly
Risk management isn’t a ‘set and forget’ process. To ensure your real estate brokerage is protected, regular reviews of the framework and any risks you’ve identified are necessary.
A monthly review of risks and risk mitigation strategies is recommended. Why? Because risk management is as important as financial management. Most businesses review their finances monthly, but how many review their risk management monthly?
Outside of your monthly risk reviews, you might also update your risk management framework when major external changes occur (for example, COVID-19 related regulations or industry changes).
It can be useful for brokers to involve your teams in the risk review process. Your team may be able to add value — and advise you of additional risks that haven’t yet been identified at the corporate level.
4. Ensure Your Team is Trained in Your Risk Management Framework
Your real estate team needs to be educated about your risk management framework. It should be part of your induction process for new team members coming on board. In addition, regular refresher training should be conducted with your existing team of real estate agents. It’s a great idea to keep ‘Risk Management’ as a standing agenda item for any regular team meetings you run.
5. Ensure You Have the Right Insurance for Your Brokerage
An important part of any risk management framework is having the right insurance. It’s one way you minimize liability for a range of potential risks that could damage your real estate brokerage. CRES has unparalleled access to more real estate Errors & Omissions options than anyone (we’re part of one of the largest insurance brokers in the world)! Let us find you the best coverage for the best price.
With CRES E&O + ClaimPrevent®, you’ll even have access to fully qualified attorneys to answer your risk management and legal questions 7 days a week.
Contact the friendly team at CRES at 800-880-2747 for a confidential discussion today.