A conversation with the E&O Chair
Michael Ziegler brings a unique perspective to the real estate industry. E&O’s new Chair of the Board first started working in it in the 1970s. He worked with his mother for the first 24 years, then alone until his son joined him in the business.
“The industry has changed pretty dramatically over that time,” he says. “It’s improved and become much more professional.”
One of the changes he witnessed was the establishment of the Real Estate Errors and Omissions Insurance Corporation (E&O) in 1988. At that time, he explains, insurance companies were charging fees that some brokerages couldn’t afford, so they opted out of their errors and omissions coverage.
“It’s important because it’s indirectly a consumer protection,” he explained. “In the ‘80s, when brokers couldn’t afford E&O insurance, consumers with valid claims may not have been compensated.
“We lobbied the government of the day, so they established mandatory insurance that covers all licensees. Both consumers and licensees benefit from everyone having protection.”
The limit covered by REEOIC was raised to $1 million in 2003 and continues to be reviewed regularly by the board. Today, astute brokers will purchase excess coverage in case a claim exceeds the limit. Michael notes that, while only a handful of claims end up costing more than $1 million, the concept of insurance is to have the coverage in case you need it. Prudent brokerages will assess the level of risk facing their licensees and ensure that they have the right amount of coverage to address those risks. This will differ from brokerage to brokerage.
COVID-19 has been an unexpected bump in the road for all brokerages. Michael says that despite sales dropping dramatically in March, they began rising again in April and are now approaching pre-lockdown levels.
While it’s too early to know how the pandemic will affect E&O claims, he notes that 76% of claims are made by buyers. In the current market, buyers are further at risk because they may not be able to access lawyers and home inspectors as easily as they usually can. As well, processing at land registry and probate courts has slowed down considerably since the lockdown occurred.
Any trends in claims could take some time to emerge, he adds, noting that 57% of claims are filed within the first year after the alleged error or omission. That rises to 79% by the end of the second year and 90% after three years.
The easiest way to handle potential E&O claims is to avoid them, Michael says. “Licensees need to be super cautious to ensure they do whatever is necessary to avoid claims.” Even though about 84% of claims are resolved without indemnity payouts, he adds, “The emotional toll is very hard on licensees. Everything they do, every action, is scrutinized as if they were under a microscope.” This will be particularly the case in a volatile market with dropping prices, as buyers may be looking for ways to get out of deals.
Be sure to take detailed notes, document everything, and keep accurate and complete files, he cautions. Making these actions part of everyday practice helps prevent claims from being filed, and your files will be an invaluable resource if a claim is filed.
Michael is no stranger to governance in organized real estate. In addition to serving on the E&O board, he’s served as chair of the Real Estate Council of BC, a director of the Special Compensation Corporation as well as the Victoria Real Estate Board, and president of the Canadian Real Estate Association.
He sees the role of the E&O Board of Directors as monitoring the industry and adjusting to changes in it, while protecting licensees. “We have to ensure the viability of the (E&O) fund, and keep it in investments that are appropriately conservative so that the fund is protected and well managed.”
He notes that the board also keeps a close eye on regulatory shifts in the real estate industry in the province, to understand how any changes will impact E&O’s services.
The most effective way for E&O to continue its positive record, he adds, is for licensees to “slow down, take the time to ensure your contracts are properly drafted, and there is no misrepresentation regarding the properties.”