A Real Estate Broker’s Guide to Per-Transaction E&O

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If you’re looking to purchase or renew your real estate Errors and Omissions insurance for your office, you may want to consider a Per-Transaction payment option. With a Per-Transaction payment, you don’t need to pay the full year’s policy premium upfront. Instead, you pay a monthly amount, based on the transactions you complete each month, with a minimum payment for one transaction per month.

How Does a Per-Transaction Real Estate E&O Policy Work?

A Per-Transaction real estate E&O policy will be customized for you, based on: your previous year’s revenue, number of agents within your firm, and average transaction price.These and other factors help determine your policy coverage limits and the per-transaction payment amount for the E&O policy year.

One advantage of Per-Transaction E&O insurance is that payments are calculated interest-free. Compare this with a policy that offers a financed payment option — your monthly payments would include the premium cost plus interest, usually spread over fewer months than the policy term.

I’m Interested In Per-Transaction E&O. How Do the Payments  Work?

To initiate your policy, you’ll make a security deposit to cover two Per-Transaction payments.  (This deposit is rolled into your following year’s policy when you renew, or can be returned to you when your policy expires.)

At the end of each month, you’ll submit a close report listing your transactions. Your monthly payment will be calculated on the number of closed transactions in the month. In a month where you have no transactions, you’ll just make a Per-Transaction payment to cover one transaction.

Per-Transaction Real Estate E&O policies may have higher minimum retention (or out-of-pocket claims expense) options than traditional E&O annual premium policies. CRES retention options start at $2,500.

How Do Brokers Apply the Per-Transaction Costs Across their Agents?

If your agents share in the payment of your E&O costs, some brokers will:

  • Split the monthly E&O costs among all agents, or
  • Only charge E&O fees to agents who complete transactions during the month

With Per-Transaction E&O, it can help you distribute costs more fairly among your more active agents.

Are There Any Risks To Purchasing A Per-Transaction E&O Policy?

Like many real estate E&O policies that cover your entire company’s activities, if you fail to make a monthly payment, your coverage could be cancelled. This puts you at risk to lose coverage for all previous transactions, due to the requirement in most policies to have continuous E&O coverage.

At CRES, you’ll receive a reminder after the 10th or 15th of the month depending on your state, advising we haven’t received your payment. If payment still doesn’t arrive before the end of the month, coverage will be cancelled. Ask us about our optional SafePay plan to cover your minimum monthly payment so you never have to worry.

It’s important to know that it’s not just the closed transactions that you list on your monthly close report that are covered. A Per-Transaction E&O policy will cover you for claims made on properties that haven’t yet closed, or are still in the sales process—just like a traditional, one-time annual payment E&O policy. This is assuming, of course, that you stay current with your monthly Per-Transaction E&O policy payments.

Can I use Per-Transaction E&O To Only Cover One Transaction This Year?

Your monthly payments will cover a minimum of one transaction each month. That will give you coverage for the full annual E&O policy. Real estate E&O coverage is ‘claims-made’ coverage, meaning that you must have an active policy both at the time of the transaction and at the time a claim is filed (even if that is over a year after the transaction was completed). If you ever cancel an E&O policy without having another policy in place before the cancellation, you will no longer have continuous E&O coverage.  In that case, any claim made on a later date on any prior  transaction will not be covered. Claims can only be covered through continuous and current real estate E&O coverage.

At CRES, all of our Per-Transaction Real Estate E&O policies come with our exclusive ClaimPrevent™ risk management benefits. You’ll have access to a local expert real estate attorney 7 days a week to answer your questions, provide legal advice, review contracts, draft documents, and much more. Unlike many other E&O companies, we’re not only here for you after a claim — we’ll also help you and your agents actually avoid claims before they happen.

Have you purchased Per-Transaction Real Estate E&O insurance before? Let us know about your experience in the comments below!

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

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