Entry by Glenn Freezman

E and O and the "Consultancy Model"


I was trying to discuss with a broker friend of mine the beauty of the ACRE. Her initial and unbendable issue was that the E and O coverage would be more than the worth of the program to her as the broker. Is there alternative waivers or something to protect the brokers against these litigious suits if there is only $150.00 per hour or task to pay for the high cost of the E and O deductible verse the 3% which in the eyes of this broker better cushions the blow. She is the broker owner of 2 large Keller Williams franchises and would be "THE FIT" for our mutual goals. THOUGHTS???


I find it interesting that brokers seem to worry about E & O when talking about ACRE, but don't seem to do so while agents are doing all that free work for clients: the listings that expire, that purchase agreements that fall apart, etc. How are they paying for E & O then? In my life, $150 pays more bills than than $0!

If we could just get brokers to think of hourly fees/bundled service fees as the gravy - a little extra money coming in the door that wouldn't have been there without the flexibility of "choices."

My thoughts exactly Betty. How many hours are put in that are unpaid because the transactions don't close!

My other thought Glenn is that the transparency of the consulting approach leads to LESS litigation. Brokers need to see that paying for the services themselves rather than the hopes of a commission will pay their bills much more securely, E&O and otherwise.

There are different ways in which E & O can be purchased. One is "per transaction" and the other is just a flat fee that covers everything. Glenn's question raises an excellent point not just with consulting as potentially risky, but the bigger issue of E & O as only tied to particular transactions as being the real risk. Betty's exactly right: we need to be covered all the time, whether we are paid or not. And if we are, there's no issue with work which is paid hourly or any other way than as a percentage of the closing costs.

I never thought much about the pay-per-transaction E & O model (I don't have it) but it sure is a scary thought now that this discussion has come up!

It might be a good idea to talk to E&O Brokers about this. In my office, even though I pay E&O per transaction, my broker pays by the year, to cover us, and just bills the agents on a per transaction basis.

Clarifying the payment plan versus the actual coverage may be the real question.

Having purchased E&O insurance for many years I would like to add my 2-cents to the conversation. I had 124 agents at a cost of $3500 per year for E&O. That breaks down to an annual cost of $29 per agent per year. Individually E&O now costs me $700. Many brokers prefer to pay the annual fee for their agents and then charge a per transaction fee as a profit center. If the average # of transactions per agent is 6 per year the broker pays $29 and is returned $300 (@ $25 per transaction). This was what I was told to do by my E&O broker. I choose to bill each agent for $29 annually. Check with your broker on the actual E&O premium to see if your transaction cost is fair.

This page contains a single entry by Glenn Freezman published on May 4, 2010 1:33 PM.

Ron's presentation was the previous entry in this blog.

Consulting Brokerage? is the next entry in this blog.

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