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Show Me The … Coverage?

Former Director of Legal Affairs for Maryland REALTORS®’.

Q:  I’m the broker/owner of my brokerage and am making every effort to understand all the nuances of the NAR Settlement Agreement so I can implement necessary practice changes and explain them to my agents. I had heard “something about E & O Insurance” on a recent webinar. I don’t recall reading or hearing anything about E & O Insurance in connection with the Settlement Agreement. Can you please explain this to me?

A: In response to your question, let’s start with some context. First, you may have heard some concerns that the unintended result of the proposed Settlement Agreement and required MLS and practice changes will be an increase in unrepresented buyers. Another concern that you may have heard is that there will be more transactions where agents won’t receive any compensation.

As you know, Maryland has required the use of written buyer brokerage agreements since 2016. If you’ve taken the Brokerage Relationships and Disclosures class recently, you may recall a question asking, “when do I need to get the buyer broker-age agreement signed,” and the Real Estate Commission’s response would be, “Before you provide any real estate brokerage services you must have a written and signed brokerage agreement in place.”

Accordingly, the proposed Settlement Agreement’s requirement that the buyer and broker enter into a written agreement before the buyer tours a home should not cause undue concern here in Maryland. Brokers who have not had such a policy, or agents who have not consistently followed such a policy, now have a unique opportunity to fine-tune their presentation skills, develop scripts, role-play, and consider obtaining the Accredited Buyer’s Representative designation or taking similar training to be able to respond to buyers’ concerns. Taking the time and effort now will help ensure that we do NOT have a large increase in the number of unrepresented buyers.

The second concern mentioned above is that there may be an increase in the number of trans-actions where buyer’s brokers/agents are not receiving compensation from any source, including the seller, the listing broker, or the buyer. Taking the effort now to step up your game in getting buyer agency agreements signed before showing a home will also help reduce or eliminate the transactions where buyer brokers/agents are not receiving compensation. The discipline of entering into a written buyer agency agreement prior to showing a home means that the buyer and agent have agreed upon the amount of compensation being paid to the buyer broker, they have engaged in a discussion regarding what the buyer can afford to pay out of pocket; and the buyer enters into that agreement with “informed consent.” These practices and conversations should all serve to significantly reduce, if not eliminate, the number of transactions where the buyer broker/agent isn’t receiving compensation from any source.

With that context in mind, let’s get back to your original question. The concern that increasing number of transactions will result in buyer’s agents not being paid was what prompted the question of whether a broker’s E & O insurance would provide coverage in those trans-actions. The answer is everyone favorite lawyerly non-answer, “it depends.” Some E & O policies would deny coverage if the broker/agent did not receive compensation while other policies do not include such a limitation. We encourage you, and every broker, to reach out to your E & O provider to determine whether your policy contains such a limitation.

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