Active Rain January 18, 2010

Independent Brokerages and Managing Risk

I have some questions for my fellow broker-owners:

Do you have E and O (error and omission) insurance? You should. 

Do you have a company policy manual? You should. 

Do you have an independent contractor agreement with your licensees? You should. 

Do you have written agreements with your licensees for commission splits? If not, why? 


Error and Omission Insurance is as necessary for running your business as liability insurance is for your car. You ought not leave the house without it. Moreover, some companies, such as relocation forms, BPO companies, and especially asset managers, will not refer business to you without proof that your E and O insurance is current and covers you for $1 million. 

A Company Policy Manual will lower your E and O premium (it did ours) and insure that there are no ambiguities with your agents. They are independent contractors to the IRS; they are a contingent liability otherwise, especially in New York, where the broker has vicarious liability for everything the agents do. In New York, if an agent hammers their thumb, the broker screams. 

Speaking of the IRS, and Independent Contractor Agreement is a requirement in some states, and another CYA (cover your assets) move.

Written agreements eliminate arguments and disputes, especially if an agent leaves. If you have a written policy on commission splits, what happens to listings when an agent leaves, how much they are paid if they leave before a closing, and the like, you will be doing yourself a great service and likely avoiding a grievance or arbitration.  

Minimize your exposure. Forewarned is forearmed.