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TYPES OF INSURANCE FOR REALTORS®

Raman Gakhal smiling along a title that says Types of Insurance for Realtors® in Alberta.

There are different classes and types of insurance for Realtors® that they can take to protect themselves from risks and threats. The reason being, real estate agents are professionals and have a business entity of their own. Apart from their personal identity, they are owners of their real estate business. This separates their personal duties and professional duties from each other. They have to manage their professional duties and goals separate than that of their personal ones.

Now, when it comes to a business entity, it will obviously have its own needs and requirements along with its own risks. Just like we ensure the safety and well-being of our personal belongings and assets, we, as real estate agents need to ensure the safety of our business as well. Managing Professional Risk is the reason we have Business Insurance for our profession of Real Estate. Take a look at the video –

The Real Estate Business can have multiple types of risks involved at every stage. To cover all the stages, we have different types of Real Estate Insurances that agents can get covered with. This helps them manage their real estate business against various types of risks. There are 4 major types of Insurance for Realtors® involved with their own specific coverage limits –

1. Home-Owner’s Insurance

Home-Owner’s Insurance is the most basic insurance policy for your real estate business. Every business owner needs basic tools and equipment requirements to run a business. Thus, this insurance covers all those basic needs and necessities needed for a smooth and normal functioning of your real estate business. You, as a Real Estate Agent will require some common mechanisms to run your real estate business.  

This insurance is named as Home-Owner’s Insurance because as a Real Estate Agent, your own a business of Real Estate Agency. Thus, this insurance is the Home Insurance for your business.

The real estate business, like every other business will need common electronics and equipment on a day-to-day basis. This will include Laptop/Computer and related accessories, Cell Phones, Printers, Fax Machines, Scanners, etc. These tools are expensive and does require a good amount of capital. Thus, the home-owner’s insurance for real estate is necessary for a real estate business to protect these possessions against damage, theft, and other threats.

A Standard Policy of Home-Owner’s Insurance may not provide enough coverage for all the equipment that one may need as a Real Estate Agent. Thus, generally, agents consider insurance plans with additional features that covers all their belongings.  

2. Vehicle Insurance

The second and most common type of insurance for real estate agents is Vehicle’s Insurance. The Vehicle’s Insurance in Real Estate covers the vehicles of Real Estate Agents against threats during professional use. The most basic job role of a Realtor® is to search for properties and showcase their research to clients as per their needs and requirements. Their role also includes dealing with clients and other parties involved in a property deal on a frequent and almost regular basis. This will need lots of transit for meetings and in-person communication, which in-turn will require means of transport.

There is a difference in insurance coverage for Personal vs Business use of a Vehicle. When you (a Real Estate Agent) have a vehicle and you use it for personal as well as business use, you will have to get an extended coverage for your vehicles to include the business use in addition to your personal use. If you fail to do so, your claims made during the business use of the vehicle (E.g., Going for a meeting with a lawyer in regard to a property deal for a client), it may be denied under your regular Personal Vehicle Insurance Policy.

A vehicle insurance is also crucial because it has a higher potential for claims as there can be multiple parties involved. For E.g., if you are taking your client in your vehicle to show a property and you get in a major accident, there will be multiple claims as your client is also involved in the accident.  

3. Comprehensive and General Liability Insurance

This insurance provides broad coverage for claims of bodily injury and damage to property of others, i.e., Civil Liability. While conducting business duties, if you damage or harm other parties or properties of other parties (third parties), this insurance will cover that.

As other parties are involved in such cases, there may be legal charges and costs that have to be incurred by law to complete the claim. This insurance, therefore, covers legal defense costs of the insured (Eg: Lawyer Fees), if the matter is within the scope of the policy.

Situations and Conditions that fall under the Comprehensive and General Liability Insurance Policy:

  1. Slip and Fall: If the client gets in accident (like a slipping in or falling/injuring themselves in the location of a property site, it would fall under the Real Estate Business Insurance of Comprehensive and General Liability Insurance Policy). The reason being, it is an accident that took place in the location of a business deal and not a private property of either the real estate agent or the client.
  2. Burglary or Vandalism: If there is a situation of burglary or vandalism in any of the properties that is shown by the agent to its client, that property is still not owned completely by any of the parties. So, the business insurance of comprehensive and general liability will cover that.
  3. Fire or Smoke Damage: If the show property gets damaged by a fire accident, it will be covered by this policy.
  4. Water Damage: If the show property is damaged by a water-related accident, then it is still under the coverage of this policy.
NOTE:
Civil Liability Errors from real estate agents in case of real estate transactions are situations that DO NOT FALL under Comprehensive and General Liability Insurance Policy. This includes errors and omissions from a Real Estate Agent, that resulted in damage to other parties (clients, lawyers, etc.) or their properties. These types of errors will be covered under a separate policy but do not fall under Comprehensive and General Liability Insurance Policy of the Real Estate Agents.

4. Professional Liability Insurance

As real estate agents, we can commit errors. Thus, this is the Errors and Omissions Insurance that covers errors of a Real Estate Agent while dealing with real estate transactions in the business. The Professional Liability Insurance in Real Estate is slightly different than the others because it is provided through REIX (Real Estate Insurance Exchange) which is ultimately governed by RECA (The Real Estate Council of Alberta). The dues of this insurance are payable yearly with RECA fees (charged to real estate agents) on Sept 30th of every year.

So, theses are the various types of insurance policies that a Real Estate Agent can take to manage their risks as a Professional Real Estate Agent.

Want to know about other Major Expenses after becoming a Real Estate Agent in Alberta?? Here’s something for you –

TOP EXPENSES AS A REAL ESTATE AGENT

Join Alberta Real Estate School for expert help with understanding the concepts of Real Estate and getting uncommon and detailed tutoring sessions summarized as per your needs. Get our personalized Notes designed to get you through the Real Estate Exams in the first attempt! Visit our list of Real Estate Tutoring Sessions for details.

If you have any doubts for Exam Preparation of any of the real estate courses or topics, reach out to us directly at 587.936.7779.

Happy Studying!

You can also listen to this article in the podcast above. We Hope you found this information useful. Stick to us for more updates.

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What is Real Estate Assurance Fund (REAF)?

A picture of Raman Gakhal along side the headline of Real Estate Assurance Fund as one of the topics of Fundamental of Real Estate in the RECA Exam.

RECA administers the Real Estate Assurance Fund (REAF), which is also known as the Consumer Protection Fund (CPF) is collected and issued by RECA. The fund protects consumers from unscrupulous industry professionals. Real Estate Assurance Fund has been set up to compensate consumers who suffer a financial loss. This financial loss could be due to Fraud. It covers frauds under Real Estate Practice as well Mortgage Brokerage Practice.

Have a look at the video below to understand the concept –

Basic Requirements to Claim Real Estate Assurance Fund (REAF)

  1. Fraud: A client whose real estate agent have been a part of any fraudulent scheme. For instance, somebody bought a house, but they didn’t get that property or there was something wrong with the property overall. This fund is then issued by RECA to individuals such as these to compensate for the fraud. This type of fraud requires a judgement in the court of law with necessary evidence to prove that the fraud has taken place.
  2. Breach of trust: Any client who was guided by wrong, deferred or a complete lack of necessary information during their contract. This kind of breach also requires a lawsuit in court.
  3. Failure of disbursement or Account of Money held in Trust: In accordance with section 25 of the Real Estate Act, when there is any kind of failure for disbursement of money held in trust (in advance) to secure the deal. For instance, not getting the deposit back which was held for holding the property. As per law, when an offer is accepted, the client should his advance payment of deposit back. The failure of money payback does not require a lawsuit to claim REAF.

How is Real Estate Assurance Fund (REAF) Collected?

REAF applies to Real Estate as well as Mortgage deals. So, if the fraud happened when buying a property or when getting a mortgage, both are covered under the Real Estate Assurance Fund. REAF is ultimately funded by the Real Estate Agents as well as the Mortgage Brokerage Professionals as when they pay RECA fees, part of it goes to maintaining real estate assurance fund.

Maximum REAF Claim Amounts

Assurance Fund compensation is subject to the following maximums:

  1. Real Estate: $35,000 per Fund applicant
    $350,000 for all claims against an industry member per event
  2. Mortgage broker: $25,000 per Fund applicant
    $100,000 for all claims against an industry member per event

Time Limits for Applying REAF Compensation

  1. Claim based on Fraud or Breach of Trust: 1 year from the date of the Court Judgment to apply for compensation from the Fund.
  2. Claim based on Failure to disburse, or account for Money held in Trust: 1 year from the date on which the alleged loss or damages occurred to apply for compensation from the Fund.

RECA cannot process your claim if you fail to adhere to this timeline.

Restrictions for REAF Claims

The following persons cannot make a claim under the Fund:

  1. Any financial institution (bank, loan corporation, trust corporation, credit union, treasury branch, etc.), whose business includes the lending of money by way of mortgage security or otherwise, or any subsidiary as per section 2 of the Business Corporations Act
  2. Any person who Council’s believes knowingly participated in or was willfully blind to the fraud or breach of trust
  3. Any corporation or other entity carrying on any business or activity specified or described in the Real Estate Act Exemption Regulations

Sample Exam Questions for Real Estate Assurance Fund (REAF)

Example 1:

What does the Real Estate Assurance Fund (REAF) cover?

  1. Errors, Omissions, and Commissions
  2. Errors, Commissions, and Fraud
  3. Errors, Omissions, and Negligent Acts
  4. Fraud Failure to disperse Funds and Breach of Trust

The correct answer here is 4 – Fraud Failure to disperse Funds and Breach of Trust.

Rationale: Real Estate Assurance Fund only covers fraud failure to disperse funds or a breach of trust. Any sort of errors, omissions, or negligent acts, all of these will be covered under REIX. It is a separate Errors and Omissions Insurance that real estate agents carry.

Example 2:

Paul Chang is a Real Estate Associate with ABC Realty. He meets Joe and Betty Hill, who are looking to downsize from their 4-Bedroom House to a Condo. The reason being they’re getting older and not able to maintain the property. Paul lists the property below market value and then brings in an offer from his brother to purchase the property. Once the Hill’s children learn of this, they initiate a Civil Lawsuit against Paul Chang claiming fraud on his part. How do the Hills go about getting compensated for their loss under the situation?

  1. REIX
  2. Errors and Omissions Insurance
  3. Homeowners Insurance
  4. Real Estate Assurance Fund (REAF)

The correct answer here is 4 – Real Estate Assurance Fund (REAF)

Rationale: In this case, we can clearly see that Joe and Betty Hill, who did not understand the value of their property happen at taken for a ride by Paul Chang. He lists the property below market value and brings in an offer from his friend or relative (in this case, his own brother) and wants to make a profit on the property. So here, he is taking an advantage of Joe and Betty Hill’s unawareness and misguides them with low property valuation. Thus, this is a case of breach of trust and fraud, and therefore, the compensation would come from a Real Estate Assurance Fund.

NOTE: REIX could have been applicable only if the Real Estate Agent(here, Paul) would have made an error (an unintentional fault) in deciding the valuation of the property and getting a lesser profitable deal with genuine buyers from the market.

Join Alberta Real Estate School for expert help with understanding the concepts of Real Estate and getting uncommon and detailed tutoring sessions summarized as per your needs. Get our personalized Notes designed to get you through the Real Estate Exams in the first attempt! Visit our list of Real Estate Tutoring Sessions for details.

If you have any doubts for Exam Preparation of any of the real estate courses or topics, reach out to us directly at 587.936.7779.

You can also listen to this blog in the podcast below. We Hope you found this information useful. Stick to us for more updates.

Happy Realtoring!!

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AREAS OF SPECIALIZATION IN REAL ESTATE LICENSING

A picture of Raman Gakhal, the creator of Alberta Real Estate School, along side the heading that writes Areas of Specialization in Real Estate Licensing.

One would think, why do we want to take one of the areas of specialization in the real estate licensing courses? Well, that is the way it works. By Law, you can become a professional Real Estate Agent starting from a specialty that you would like to start your career with and then grow with other sectors as you wish. At some point in your real estate career, you might decide to develop a specialty. Very few real estate professionals can—or want to—do everything for everybody. Many real estate professionals are generalists, who do some of this and some of that, while others find a real estate niche that they love and stick to it. In a competitive market like real estate, it literally pays to think strategically about your career. One of the most fundamental tactics you should consider is finding a niche or a specialty that suits you, your region, and your business goals.

A niche can involve catering to a certain type of client—such as buyers or sellers—or a market area or a property type, such as condos or commercial. Some areas of specialization are more common than others, and some have been highly successful for agents. It never hurts to specialize in something that you enjoy doing.

Have a look at the video –

There are 4 Areas of Specialization in Real Estate Licensing in Alberta –

  1. Residential
  2. Commercial
  3. Rural
  4. Property Management
Note: Real estate brokers and Associate Brokers must complete all four sector courses.

Each of the Specialization Courses include the following –

Residential Real Estate

A picture showing a sample of a residential house explaining the concept of Residential Real Estate in detail.

A person practicing residential real estate would help their clients buy and sell Residential Properties. Residential properties would include things like Single-Family Detached Homes, Townhouses, Condominiums, or Duplexes. Any of these places where people live would fall under a residential real estate. If you want to help people buy and sell their homes, you want to get your license in a Residential Real Estate Sector. For other introductory information on the course, visit the RECA link for Introduction to Residential Real Estate.

Commercial Real Estate

A picture showing a sample of a commercial buildings explaining the concept of Commercial Real Estate in detail.

In commercial real estate, a real estate agent would help their clients buy and sell Commercial Properties. Properties like Office Condominiums, Commercial Plazas, Commercial Buildings, Commercial Units, etc. are included in Commercial Properties.  These are the properties bought by small or large businesses as their office spaces. Other examples include Warehouses, Industrial Units, Retail Storefronts. Eg: Dry-Cleaning Store, a Restaurant, or anything used on a commercial level. For other introductory information on the course, visit the RECA link for Introduction to Commercial Real Estate.

Rural Real Estate

A picture showing a sample of a Rural house explaining the concept of Rural Real Estate in detail.

If you are a Real Estate Agent practicing in Rural Real Estate, you would help your clients buy and sell Rural Properties. Rural Real Estate includes properties that are used for personal use but are located outside the city in nearby towns, areas, or city outskirts, basically in the rural area and not in the metropolitan area of the main city. Properties like Farmland, Ranches, Livestock Farms, etc. For other introductory information on the course, visit the RECA link for Introduction to Rural Real Estate.

Property Management

A picture showing a some experts in the background and highlighting points that cover the major responsibilities of a Property Manager.

In Property Management, you’re helping your clients Manage or Lease all kinds of Properties. Activities in this practice include Renting or Leasing Real Estate. Properties like Houses, Condos, Apartments, Commercial / Business Units, etc.  Your duties as a Property Manager would be helping your clients negotiate the price of the property, approving leases on behalf of your client, collecting rent. A Property Manager manages the property, hires Contractors, gets the repairs done, etc. For other introductory information on the course, visit the RECA link for Introduction to Property Management.

Steps to start your Licensing Journey

So, how would you specialize in your area of interest and what are the initial steps??

Step 1

Complete your basic Education on Real Estate Licensing which is – Fundamentals of Real Estate Course. It helps you understand the foundational knowledge and skill set that you need to become a real estate agent. The Course Fee for Fundamentals of Real Estate is $1250, and you could take this course through the RECA Study Portal.

Step 2

The second step would be to choose your Area of Specialization for Real Estate Practice. So, this is where you get to decide which area you want to practice. Prices for each of the Specialization Courses differ. But they all fall in the range of $800 to $1250. You can get an overview of fees for various courses at the RECA website here.

Step 3

After completing a specialization area, you can Get Licensed in Additional Courses, if required. Thus, you can specialize in 1 or more areas of your choice. To get started, you must have passed the Fundamentals Course with minimum 1 Area of Specialization. Later, you can get more as per your wish. You also need to Renew your Existing License in the Specialization Courses you have already passed from time to time.

Note: The most Common Area of Specialization in Alberta is Residential Real Estate.

If you are planning to become a Real Estate Agent in Canada, these areas of specialization in Real Estate Licensing with their basic understanding of the roles and responsibilities of each of them is a must. Make your decision after you have all the information as the courses are long and will require a good amount of your time and effort. These will help you start and shape your career in the direction you choose.

Get to know more about the journey of a Real Estate Agent in Alberta by understanding

How to Change the Class of Real Estate License

Join Alberta Real Estate School for expert help with understanding the concepts of Real Estate and getting uncommon and detailed tutoring sessions summarized as per your needs. Get our personalized Notes designed to get you through the Real Estate Exams in the first attempt! Visit our list of Real Estate Tutoring Sessions for details.

If you have any doubts for Exam Preparation of any of the real estate courses or topics, reach out to us directly at 587.936.7779.

You can also listen to this blog in the podcast below. We Hope you found this information useful. Stick to us for more updates.

Happy Realtoring!!

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What is Vacancy Rate and Occupancy Rate in Real Estate and How to Calculate them?

Raman Gakhal of Alberta Real Estate School in a still from the video with the title of Vacancy Rates and Occupancy Rates in Real Estate.

Vacancy Rate and Occupancy Rate are 2 very basic and important concepts of Real Estate. They are important for a Real Estate Agent to understand the market conditions and gauge the direction of real estate in near future. It is also important for licensing aspirants who are planning to become Real Estate Agents in future to understand the each of small concepts in detail and serve their clients in their future real estate journey.

It is imperative that you understand the concepts clearly and make accurate and correct calculations when finding the vacancy and occupancy ratios of a market. Using the wrong rates can negatively affect the financial performance of a rental property as well as the market value.

Note: The topic of Vacancy Rate is covered under the Fundamentals of Real Estate Course as well as the Commercial Real Estate Course by RECA. So, prioritize this topic accordingly.

Get the key points of the blog in the video below:

Let’s have a look at the Terms and Formula for each of the topics:

VACANCY RATE

Definition:

The Vacancy Rate is the percentage of all available (vacant) units in a rental property. These units are not occupied by any tenant as of current day and remain vacant i.e., available to rent or get occupied by future tenants or occupants.

Formula:

When calculating the Vacancy Rate of any given area or property, you must first find out the Vacancy Value of the given area and then multiply it with 100. Vacancy Rate is actually the percentage of the total number of vacant units from the overall number of units of any given property. This can be presented as –

Sample Exam Question

Question: An apartment building has 400 units out of which 220 are occupied. Calculate the Vacancy Rate?

Solution:

OCCUPANCY RATE

Definition: The Occupancy Rate is the percentage of all occupied (non-vacant or rented) units in a rental property. These units are occupied by tenants as of current day and are counted as properties that are help in revenue generation for that current period.

Formula:

When calculating the Occupancy Rate of any given area or property, you must first find out the Occupancy Value of the given area and then multiply it with 100. Occupancy Rate is again, the percentage of the total number of vacant units from the overall number of units of any given property. This can be presented as –

Sample Exam Question

Question: An apartment building has 200 units out of which 120 are available for rent. Calculate the Occupancy Rate?

Solution:

Additional Tips

  1. Vacancy Rate and Occupancy Rate are inter-related to each other. At any given point of time, Vacancy Rate is the opposite of Occupancy Rate. For example, if any property has 30% Vacancy Rate, then it means that the remaining 70% is the Occupancy Rate. 
  2. It’s tempting to use the market average when calculating Vacancy Rate and Occupancy Rate in Real Estate for a property pro forma. But the fact is that Vacancy Rates and Occupancy Rates vary from market to market, and even from neighborhood to neighborhood. 
  3. Vacancy Rates and Occupancy Rates only resonates the Rental Properties or Market of a particular place. It doesn’t denote the Ownership segment of the Real Estate Market.

Do you know, How to Calculate Time Value of Money? No worries, we’ve got your back. Just stay connected!

Join Alberta Real Estate School for expert help with understanding the concepts of Real Estate and getting uncommon and detailed tutoring sessions summarized as per your needs. Get our personalized Notes designed to get you through the Real Estate Exams in the first attempt! Visit our list of Real Estate Tutoring Sessions for details.

If you have any doubts for Exam Preparation of any of the real estate courses or topics, reach out to us directly at 587.936.7779.

You can also listen to this article in the podcast above. We Hope you found this information useful. Stick to us for more updates.

Happy Realtoring!

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