What Real Estate Brokers Need to Know About Fidelity and Crime Bonds

man putting money in his suit jacket

Are you a real estate broker managing multiple real estate agents, either as employees or contractors? As the number of people within your team increases, so does your risk. And, as a real estate broker, it’s important to mitigate these risks and ensure your business is adequately protected.

Fidelity and Crime Bonds are one way you can minimize your risk as a real estate broker.

What are Fidelity and Crime Bonds and How Can They Help You?

Fidelity and Crime bonds are sometimes labeled “Dishonesty Bonds”. They provide compensation to your clients if they suffer losses, in situations where a member of your team does something illegal or dishonest. This includes:

  • Stealing goods or cash at a client’s property
  • Illegally obtaining benefit from a transaction
  • Fraudulent use of client credit cards or bank accounts
  • Illegal wire transfers
  • Any other misconduct which results in a loss for the client

Fidelity and Crime bonds apply to your real estate agents and even your cleaning contractors, if they were to steal something from your client’s property. These bonds are designed to protect your business from any liability, so you won’t have to compensate the client out of your own pocket.

In some cases, clients will insist that you have Fidelity and Crime bonds in place, to ensure compensation will be available to them if the transaction turns sour due to misconduct. But, even if your clients don’t insist on having bonds in place, it’s good business practice to protect yourself as a broker. You could have the best possible recruitment and selection process and still end up one day having a dishonest employee. Even if they were not dishonest when you employed them, sometimes circumstances change.  Issues such as gambling addictions, drugs, or money troubles can entice a team member toward misconduct and/or illegal activity.

As a broker, you’re in control of your business, and you can guide your staff and contractors in the way you want them to do business. However, you can’t control their actions — and that is precisely why Fidelity and Crime bonds are a necessity in any real estate business.

What If I Trust My Staff?

Obtaining a Fidelity and Crime bond to protect against intentional wrongful acts by your staff may seem like an untrusting thing to do. However, while everyone likes to think they can trust their staff, Fidelity and Crime bonds will protect you for that occasion where you can’t.

Think of it like building insurance. The chance of needing to replace your building and contents because of flood or fire may be slim.  But you would normally insure your building just in case, because the cost of replacement out of your own pocket would be significant — possibly even putting you out of business. It’s also worth noting that fraudulent activity can go undetected for several years, and small businesses are particularly vulnerable to financial losses due to lawsuits.

Fraud can happen in any business. In the United States alone, $400 billion is lost by organizations each year because of internal fraud. Risk management is an important function in any business, and having systems and internal controls in place is essential to protect yourself against any future liabilities.

Using Fidelity and Crime Bonds to Your Advantage

Most regular business insurance excludes fraud and misconduct, so it’s unlikely you would be covered for these things under your general insurance. Fidelity and Crime bonds are specifically designed to protect your business against such actions, which is an asset to both you and your clients.

It’s an asset which can be leveraged in your marketing and pitches to clients, because not all brokers offer Fidelity and Crime bond protection for their clients. It’s a positive sign of reliability, dependability and trust. It also demonstrates a high degree of initiative, which can distinguish your brokerage as a proactive business, as compared to your competitors.

Finding Out More About Fidelity and Crime Bonds

CRES offers Fidelity and Crime Bonds as an optional coverage, which can be added to an Errors and Omissions (E&O) policy. What’s more, with CRES E&O + ClaimPrevent®, you will also have access to legal assistance 7 days a week. Our legal hotline is manned by experienced real estate attorneys, who can answer any questions you may have and/or provide advice on risk-related issues affecting your business. The CRES team will also work with you every step of the way to help you proactively manage issues before they become lawsuits and E&O insurance claims.

To find out more about Fidelity and Crime Bonds or other insurance coverage options, contact the CRES team on 800-880-2747 for a confidential discussion. CRES can find a solution that fits your business.

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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