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Top 5 Risks in Real Estate With the Biggest Impact

  • By: Orlando Velazquez
  • Published: January 3, 2019

Unfortunately for those in the real estate business, you have to worry about not just the often unpredictable housing market. You also, as with every small business, have to contend with a variety of constant risks that could prove crippling to the expansion and overall health of your business. In terms of developing a smart and comprehensive risk management plan, the first and best thing to know simply involves the risk-factors that you might be facing. Once you understand the full scope of these risks, you can start figuring out the best ways to reduce your chances of being greatly impacted by them.

Part of this risk management plan involves working with various professionals in the industry like real estate attorneys and estate agents. They will usually have the expertise needed to navigate various important aspects of running the business. Beyond that, be sure that your risk management plan is in operation before you open for business. Don’t let this slip below your radar; it is definitely a priority.

Having said that, there are many risks that your business may be susceptible to, but here are the five most significant, potentially harmful risks that you, as a real estate business owner faces.

  1. Client Injury

This risk is pretty standard across all corporate fields. If a client gets injured on your property – at an open house, or at the office of your agency – they are well within their legal rights to sue you for damages. If a situation like this does occur, you would be sued under the grounds that your organization is liable for the injury. So, it only makes sense to purchase Liability Insurance.

It comes in multiple forms: the two you should consider are Professional and General Liability Insurance. General Liability Insurance covers you against those unforeseen, accidental circumstances, and Professional Liability Insurance covers you against claims of negligence. The best thing to do is to purchase both a Professional and General policy – the premium expenses are worth it if you ever do end up in court.

  1. Omission

This stems from an inability to communicate expectations between the buyer and the seller. If, for example, your client (the buyer) is under the impression that the seller is going to leave a certain piece of furniture, but the seller decides to take it with them, and your agent fails to effectively communicate this, you might face a legal suit claiming negligence or a failure to disclose all information. The best defense here is to simply avoid it: make sure your agents are always careful, cautious, and beyond-thorough. Communicate everything, make sure all parties are aware of all expectations, and you should be safe from a lawsuit citing omission.

  1. Discrimination

Wrongful discrimination occurs, for instance, when a real estate agent shows or neglects to show a client to a certain property based on that client’s race, gender, or religion. If a client feels like they have been discriminated against, they can sue your business for wrongful discrimination, a suit which will not be easy to defend against. The best defense here is, again, avoidance. Enforce equal and fair practices to all clientele, regardless of personal biases, which don’t belong in your place of business. But, just in case something crops up, it is a good idea to have a good real estate attorney on speed dial.

  1. Doing Too Much (In a Bad Way)

As a real estate agent, you are in a unique position to look into a client’s personal life and situation. Because of the nature of your work, which requires you to meet all the many needs and requests of your client, it is often easy to accidentally overstep your bounds. This means that you should refrain from offering advice on anything that is unrelated strictly to your business with the client. If you have Professional Liability Insurance (which you should) you are protected against any negligence on your behalf and in relation to real estate. If you give advice that exceeds your mandate as a realtor, that Professional Liability protection might not protect you. It’s just best to stick to all-thing real estate.

  1. Violating Your Code

As with most industries, the real estate industry (The National Association of Realtors) has a widely accepted code of conduct. If it can be proven that you acted in violation of this code, you could face lawsuits from the NAR, as well as your clients. The best thing to do here is to familiarize yourself with your code of conduct and to make sure to follow that code and behave ethically.

While there are numerous risks associated with real estate, these are some of the more impactful situations you might come across, as all of them could lead to possible litigation. Now that you know what hindrances you might be facing, it’s time to get that risk management plan together.

Orlando Velazquez

About the Author Orlando Velazquez has been practicing law for over 26 years and has filed
thousands of consumer bankruptcy cases. He began his career as a
bankruptcy attorney at a large consumer bankruptcy firm but
wanted to add a more personal touch so after five years. Read More

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