Texas Real Estate State Practice Exam

Which insurance protects a broker if the seller unknowingly misrepresents a property's condition?

1. Homeowners insurance

2. Medical insurance

3. Errors and Omissions insurance

4. Property damage insurance

The correct answer is: Errors and Omissions insurance

Errors and Omissions insurance is specifically designed to protect real estate professionals, including brokers, from claims arising out of mistakes or negligence in the provision of their professional services. This type of insurance covers situations where a broker may be held liable due to misrepresentations made by a seller, even if the seller was unaware of the inaccuracies. In a real estate transaction, if a broker inadvertently conveys false information about a property’s condition based on a seller’s misstatements, Errors and Omissions insurance can help cover legal costs and any potential settlements. This kind of coverage is crucial for brokers as it safeguards them against the financial implications of such claims, ensuring that they can continue to operate without incurring significant losses due to instances outside their control. The other types of insurance mentioned do not provide this specific protection. Homeowners insurance typically covers personal property and liability within a homeowner's residence. Medical insurance pertains to health care expenses, while property damage insurance usually covers physical damage to property rather than misrepresentation in real estate transactions.