2-10 Blog

What is risk management and why do I need it?

– 0311 realtor homeowner1 – What is risk management and why do I need it?by Nancy Migal, Account Executive
2-10 Home Buyers Warranty

What is risk management? “This means that through certain procedures and ethical conduct, you the agent and the broker is looking to reduce exposure that will harm parties involved in the transaction.” From the American Heritage Dictionary.

Why risk management?

  • Home buyers are tapped out and don’t have the money for repairs after coming up with a down payment as most are living paycheck to paycheck.
  • Homeowners spend an average of $900 each year to repair a home system and appliance.
  • Home buyers look at Realtors®/Brokers as those with “deep pockets.”
  • You work hard for your commissions; no one wants a “commission- ectomy.”

Four practices of risk management

1. Education

  • Recognize and deal with situations that most frequently result in litigation.
  • When you educate your clients about home warranties and the importance of home inspections, they are more likely to want them.
  • Remember a home warranty is a “limited” service agreement and does not cover everything, but can save your clients hundreds or even thousands if a system fails.
  • Encourage the client to read the home warranty contract*.
  • Let the client know they MUST call to place a claim before having a repair made.
  • Educate yourself! Know the warranty company you are working with and remember that terms and conditions differ from one company to the next.

2. Risk anticipation

  • Identify the source of potential problem; take necessary steps to prevent them.

3. Risk control

  • Notify your broker/manager as soon as you know of a dissatisfied client.
  • Be careful what you say about a property defect.
  • Document everything in writing; this is the most important step to protect yourself.
  • Disclose anything that may have come up in a previous home inspection.
  • Remember to extend home warranty listing coverage for a seller!

4. Risk shifting

  • Utilize every tool available to shift the risk from you to a third party.
  • Property Disclosures
  • E & O Insurance
  • Inspections
  • Home Service Contracts (home warranties)
  • Have buyers and sellers sign declinations or waivers if declining coverage


Educating your clients and using the tools available will not only protect yourself but your buyers and sellers as well. Home inspections do not guarantee that systems will continue working after a closing.  However, having a home inspection can help a home buyer rule out a pre-existing condition when a home warranty claim is made soon after the purchase. It is a good recommendation to also have a certified HVAC inspection done.  Home warranty companies don’t require home inspections for home service contracts, but they can be a base line for determining whether a failure is pre-existing or not.

It’s important to explain to your sellers that they can protect themselves by having a home warranty put in place at the beginning of the listing period.  Not only will they get complimentary** coverage from most warranty companies, but they will be protected against a potential post sale dispute with a buyer when a failure occurs soon after a closing.

*Coverage varies widely among providers.
**Not available in some states.