experts: real estate column Friday, July 30, 2004

Realtors Taking a Risk

All Realtors should ask the question of their affiliates, "Am I covered under your liability insurance?" and should get the answer in writing.

By Marty Douglas

As published in REM - independent news and opinion for Canada's real estate industry.

A recent story in REM concerning the plight of Realtor Paul Allard after a fall as he approached the door to his broker's office roused my empathy and triggered my risk radar. One of the issues was allegedly his broker's lack of liability insurance. As I scrambled to make sure our liability insurance and that of our building owner was adequate under similar circumstances, I got a heads up question from my insurance broker that made me go "Uh oh!".

"Are your staff employees or independent contractors?"

My sales training kicked in.

"Obviously you have a reason for asking that question. May I ask why?"

Turns out, it could be the difference in the plight of any Realtor regardless of the status of the broker's insurance. If he's an employee, he may not be able to sue the employer – rather, he would rely on worker’s compensation, presuming contributions had been made and worker’s compensation approved the claim - a heroic assumption in B.C. to be sure. If he’s an independent contractor, then he can sue the broker and the building owner, whose insurance would presumably cover the claim. But ... suppose the Realtor was accompanied by a client on their way in to sign a deal. The Realtor slips and knocks down the client and the client is the injured party.

The client sues the Realtor, the broker and the building owner. As an independent contractor, the Realtor would not be covered by the insurance of either the broker or the building owner. If the client was a brain surgeon whose injury affected his earning power, the losses could be staggering. The Realtor is in for a lifetime of financial hurt. Now, your circumstances could be different depending on status and provincial law, but now is the time to consider the implications of the rush to independent contractor status in its entire context. Sure, it may be ideal from an income-planning point of view. But loss prevention is also prudent income planning, and the best loss prevention program includes adequate insurance.

In B.C., we may be about to achieve the same status as lawyers - independent law corporation - under the umbrella of our principal agent (or broker or nominee depending on your jurisdiction). Every one of us should be asking the question of our affiliates, "Am I covered under your liability insurance?" and getting the answer in writing. Every salesperson, every broker, every landlord. In writing. Property managers should be named in the policies of their owner clients. Individual Realtors should consider whether WCB coverage is appropriate for the staff they hire for secretarial or other assistant-related functions.

For those under a franchise umbrella, have a look at your business card. Do you see the fine print words to the effect that "each office is independently owned and operated"? Why do you suppose they have that displayed? The big print giveth - the fine print taketh away? Franchise agreements usually require the little guy insure the big guy for when the injured other little guy sues the big guy with the supposed deeper pockets.

At the CREA conference earlier this year, several of us discussed whether the declining profitability of the brokerage business is a solvable problem. Commission splits, increased costs, shrinking margins, recruiting and competition were batted around during the presentations and Q & A. Risk was the elephant in the room no one talked about - perhaps because those already in the game take it for granted.

But from the outside looking in, perhaps the biggest reason fewer salespeople are interested in becoming brokers is risk versus reward. Bank robber Willy Sutton said he robbed banks because that's where the money was. Until we put the money back into the brokerage business, the risk seems pointless.

Marty Douglas is the sales manager for Coast Realty Group (Comox Valley) Ltd., one of nine Coast Realty Group offices on Vancouver Island. He is a past chair of the Real Estate Errors and Omissions Corporation of B.C., the Real Estate Council of B.C., the B.C. Real Estate Association and the Vancouver Island Real Estate Board. 1 800 715 3999; fax 250 897 3933. Email

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