Did You Read That? And Are You Covered for That?
Errors and Omissions Policy
I just spent about half an hour carefully reading my Errors and Omissions Policy for my real estate brokerage. Have you read yours? If you aren’t the broker, your excuse is that the broker probably doesn’t share it with you. If you are the broker, there’s no excuse! My current policy has a lot of fine print about the following: waivers for home warranties, coverage for drones, and fraudulently induced wire transfers. That’s on top of what is covered in general, because of the questions I had to answer, as the broker, about what we do, and how much of it we do.
There are a lot of brokers and agents who don’t read the fine print and find out too late that they aren’t covered for something they have been doing.
One of the things I urge every broker to check on, and then make a policy about in their office, is hybrid appraisals. If you haven’t heard of these yet, they are Fannie and Freddie’s latest shiny object. They are ‘performed’ by having someone (possibly a licensed agent, although the companies seeking them have been known to post the job on craigslist) go to a house, take pictures, take notes, and send them either directly to an appraiser, or back to the company, who sends them to an appraiser. The appraiser then performs a ‘desktop’ appraisal, meaning she is relying completely on someone else’s notes, opinions, and assessment of condition, etc. of the house.
As a bilingual person (I speak appraiser and agent because I’m both an appraiser and a broker), I wouldn’t touch one of these with a ten-foot pole. Many appraiser’s E & O policy does not cover the appraiser for this. But what about the agent? Suppose a loan is made based on this hybrid valuation? Suppose things go bad?
If you doubt for a minute that everyone who touched this transaction will be added to the lawsuit, you are naïve. As an agent, you are participating in the valuation of a property. You probably aren’t licensed for that, depending upon where you are. And, the money offered for these hybrid appraisals is low for both the agent (or whoever the inspector is) and the appraiser.
In my opinion, the risk just isn’t worth it.
Melanie J. McLane, REALTOR®, Broker of Record, Jackson Real Estate, RB067421; For real estate inquiries, call 570-398-1201, or the cell phone number at the end of this signature. Certified PA Residential Appraiser, and PA Certified Broker Appraiser. Real Estate Educator, AQB Certified USPAP Instructor, REBAC Hall of Fame 2008, RSPS of the Year 2012, ABR, CRS, CRB, EPRO, GRI, GREEN, RAA, RSPS, PSA, SRES, SRS, CDEI Certified Distance Educator. West Branch Valley Association of REALTORS®, REALTOR® of the Year 1994 AND 2017, Pennsylvania Association of REALTORS® REALTOR® of the year, 2018. For all things real estate, including education, email me at Melanie at TheMelanieGroup.com or call me at 570-660-9671.
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