Planning is the most fundamental management activity. Almost every business decision is guided by a business plan. Planning takes time and money; however, the resources devoted to planning are relatively small in comparison to the benefits of a sound plan that is followed and reviewed often. It is useful for building credibility with others outside your company. For the plan to be effective, it must be flexible and measurable, but, most important, it must be achievable.

The development of the business plan begins with creating a mission statement. Everything else in the business plan supports the mission statement.

The mission statement identifies specific objectives or goals for accomplishing the mission. These are the end results to be achieved. Goals have several characteristics. They must :

  • be specific or identifiable,
  • be measurable,
  • be attainable, and
  • have beginning and ending dates.

Each of the goals is supported by strategies that prescribe the methodology used in accomplishing that specific goal. Strategies include things needing to be done to overcome any obstacles or enhancement of resources.

Preparing a Policy and Procedures Manual
A policy and procedures manual should be written and should serve as a risk management tool for the company.

Policies and procedures are extremely beneficial for the following reasons:

  • Establishing a clear understanding of the relationship between broker and sponsored licensees as well as administrative functions versus staff functions
  • Working to resolve conflicts before they come up
  • Building confidence that everyone knows what the rules are and how the company is supposed to operate
  • Giving guidance for many of the situations licensees face on a day-to-day basis Keep in mind that the policy and procedures manual is not a sales training manual..

Safety Concerns: Appointments and Showings

Many real estate firms have responded to the violence by incorporating safety procedures into their procedure manual as a way to help keep their agents safe. Licensees can help minimize risks by implementing the following suggestions:

  • Ask the customer for work, home, and cell phone numbers and a physical address. Verify the information by calling the customer at one or more of the numbers.
  • Give someone in your office an itinerary of properties you plan to show and then check back in often by cell phone.
  • Do not meet unknown customers at a property. Require that they meet you at your office. Make sure someone writes down their license plate number and the type of car they are driving.
  • Never get into a car with someone you don’t know. Use your vehicle for showings or ask your customer to follow you in another car.
  • Program your cell phone to dial 911 at the touch of a button.
  • Never work at a public open house by yourself.
  • Do not show vacant properties by yourself unless you know your customers, and never show properties after dark.
  • Keep pepper spray or Mace® handy.
  • Always follow the customers into the property and let them enter while you stay by the door.
  • Pay attention to exits.
  • Ask someone else to accompany you to show or list property if you feel uncomfortable about the people with whom you are working.
  • Don’t assume that women are safer customers than men. Women are as just as capable of armed
    robbery and sometimes work with a partner who waits at the house for the two of you to arrive.

Business Planning
To stay on top of changes in the real estate industry and practice, as well as keeping up with emerging technologies, brokers should review and update policy manuals regularly.

The Real Estate License Act of 2000 Section 10-40 requires that “every brokerage company or entity, other than a sole proprietorship with no other sponsored licensees, shall adopt a company or office policy dealing with topics” such as:

  • the agency policy of the entity,
  • fair housing, nondiscrimination, and harassment,
  • confidentiality of client information, and

Errors and Omissions Insurance
Sponsoring or managing brokers have an array of issues and options to consider when deciding to obtain an errors and omissions insurance (E&O) policy. In general, they need to determine what level of protection to seek in the policy and how to tailor the coverage to their sponsoring/managing practice. Because insurance policies and practices vary from company to company, the sponsoring or managing broker must be careful to review any specific policy intended for the office and should discuss coverage with more than one insurance provider before obtaining coverage.

The classes of services performed by licensees shape the types of liability claims most often filed against real estate licensees. Real estate licensees may represent buyers, sellers, lessors, and lessees. They coordinate a variety of services, such as insurance, title, loan origination, home inspection, and legal review of contracts. In addition, they often function as independent professionals managing their own offices, advertising campaigns, and other related business functions. In providing these services, licensees become vulnerable to potential liabilities.

Liability claims can also arise from a number of related services provided occasionally for a separate fee basis or are incidental to the transaction. These include property appraisal, property management, auctioneering, consulting, and handling earnest monies or security deposits.

The most common errors and omissions claims against real estate licensees include the following:

  • Mishandling monies (earnest money or security deposits) during transactions
  • Making misstatements about material facts regarding the property, such as the presence of lead-based paint, asbestos, or radon
  • Misrepresenting the property dimensions or failure to measure property dimensions accurately
  • Disclosure of confidential information without authorization from the client
  • Undisclosed dual agency
  • Failure to identify the real or personal property correctly in the contract
  • Mistakes regarding the property tax identification number (PIN) for the subject property or failure to provide an adequate legal description of the property
  • Misrepresentations about financing arrangements
  • Failure to disclose a financial interest in the customer who is negotiating with the client
  • Failure to disclose financial relationships compensating the licensee in the transaction
  • Violations of the federal Fair Housing Act and the Illinois Human Rights Act
  • Breaching the terms of the listing or buyer agreement or the property management agreement

Policy Protection and Covered Services

A real estate licensee needs insurance protection from claims made by clients, customers, and consumers related to the provision of real estate activities, referred to as professional services by the insurance industry. The sponsoring/managing broker must determine whether the errors and omissions policy adequately addresses what :

  • services are covered,
  • person(s) is(are) covered,
  • damages are covered,
  • defenses are covered, and
  • territory is covered.

Real estate licensees should know whether the services they provide constitute professional services and are, thus, insurable under the policy. They should also be aware that professional services are defined differently in each insurer’s policy.

Professional real estate services typically refer to services that require a person to have an Illinois real estate license in order to perform those services on behalf of clients, customers, and consumers. As a prerequisite for coverage, the licensee must possess all valid necessary licenses or certifications at the time of the act or omission giving rise to the claim and must be acting within the scope of the employment agreement, either written or oral. Sometimes insurance companies will include coverage for ancillary professional real estate services rendered by the insured for others, such as a notary public’s duties.

Covered Defense Costs
Errors and omission policies may sometimes pay the costs involved in investigating, defending, and settling claims. These costs primarily involve attorney’s fees but also include related expenses required by the claim settlement process. The sponsoring broker should determine whether defense costs are covered by the policy or in addition to the policy limits. If defense costs are covered within the policy limits, then as the legal fees increase, the limits of the coverage of the policy are proportionately reduced.

Excluded Coverage
Most E&O policies exclude certain ancillary real estate related activities. These exclusions include a licensee’s involvement in areas that do not require an Illinois real estate license, such as property development and insurance agency operations.

Depending on the insurer, coverage for such services may be bought back for an additional premium, if an insured’s operations require such coverage. A real estate licensee who wants coverage for such services may obtain it by paying an additional premium or, depending on the limitations of the policy, by obtaining a separate policy. The sponsoring or managing broker should also be aware that vio­lations of fair housing laws, some civil sanctions, and criminal act are not covered by E&O policies. Some policies will cover the legal defense for certain issues, such as discrimination, but not the damages awarded.

Other possible exclusions from coverage under E&O policies include the following:

  • Bankruptcy of the insured
  • Violation of securities law
  • Wrongful termination
  • Employee Retirement Income Security Act (ERISA) violations
  • Claims by or against related entities
  • Workers’ compensation claims
  • Claims arising from usage of vehicles, aircraft and watercraft
  • Environmental issues, such as mold and asbestos
  • Real estate owned by the insured
  • Commission disputes

Covered Persons
E&O policies are intended to cover those licensees whose licenses are held by the sponsoring broker, as well as office staff and unlicensed assistants in an insured real estate broker’s office who may be involved in a transaction—even if their function does not involve professional activities. Where the sponsoring broker is a business entity, such as a partnership, corporation, or limited liability company (LLC), these policies can include coverage for past and present partners, officers, directors, and regular employees.

Independent Contractors
Most real estate offices that sell residential real estate will sponsor licensees who are treated as independent contractors. Therefore, it is important that the E&O policies cover those independent contractors. The sponsoring/managing broker must keep in mind that unlicensed assistants cannot be treated as independent contractors because it is a violation of federal tax law. Therefore, the sponsoring/managing broker must be certain that the E&O policy is written to cover unlicensed assistants. A sponsoring broker must also address liability arising from predecessor firm issues.

Because there can be coverage gaps between E&O policies and commercial general liability (CGL) policies, the sponsoring/managing broker should ensure that excluded coverage for bodily injury, property damage, and personal injury are covered by CGL policies or by special endorsement. Potential gap coverage between E&O policies and CGL policies should be discussed by the sponsoring broker with the insurer to best customize the coverage to the brokerage firm.

Covered Territory
Most E&O policies cover claims resulting from anywhere in the world, provided the claim and concomitant litigation is brought in the United States, its territories or possessions, or Canada. Actions conducted outside the United States will likely require additional coverage or a separate policy. The licensee should be aware that use of Web sites with their worldwide exposure might lead to claims and litigation outside the United States; a licensee would need a policy with unrestricted territorial coverage to address this issue.

Other Policy Issues
The sponsoring or managing broker should be aware of additional issues that might affect E&O coverage. The insurance claims process varies from insurer to insurer. Therefore, licensees need to understand the procedures of their provider. Some policy issues to be aware of include the following:

  • Most E&O policies have liability caps that set a payment limit per claim and an aggregate payment limit; the licensee should obtain coverage that matches the licensee’s liability exposure.
  • There are two basic types of deductible provisions. One type of deductible applies to each error committed, and the other type applies to each claim filed.
  • Most E&O policies have provisions that limit payment to the amount offered in a settlement offer.
  • All E&O policies have some additional conditions that are essential elements of the policy’s coverage.
  • Problems may arise when one insured sues another insured.
  • Although most insurers limit coverage to the inception date of the policy, some insurers will consider providing first-time insurance buyers coverage for prior acts (for an additional premium).

It is the duty of the sponsoring broker to determine what level of E&.0 insurance is necessary to meet the needs of the brokerage office.

Personal Assistants

A personal assistant, also known as a real estate assistant or professional assistant, is often a combination office manager, marketer, organizer, and facilitator with a fundamental understanding of the real estate industry. While an assistant does not need to have a real estate license, she is allowed to perform many more duties if holding a real estate license. (In Illinois, there is no specific assistant’s license, so licensed Personal Assistants have to obtain a Broker’s License.)

An unlicensed assistant’s duties might include:

  • clerical functions,
  • secretarial functions,
  • answering phones.

A licensed assistant can:

  • set up and host open houses,
  • deal more extensively with clients,
  • actively show houses,
  • assist in all aspects of a real estate transaction.

In other words, a licensed assistant can perform any activity that any licensee is permitted to perform.

Section 1450.165 of the administrative rules specifies the permitted activities in which an unlicensed real estate assistant may engage.

The Real Estate License Act of 2000 requires that licensed personal assistants must have an employment agreement with the sponsoring broker of the firm in which they are working, even though they are, in practice, working for an affiliate licensee. The sponsoring broker must pay licensed personal assistants.