Generic business risk is mostly a matter of insurance. Although there is overlap, each level of the real estate business will typically carry insurance. For instance, individual agents carry auto insurance on their vehicles consistent with transporting clients, but include the brokerage as an additional insured. Real estate companies will have their own errors and omissions (E&O) insurance, but include agents in the policy.
Fire insurance, premises liability insurance, income insurance and the like should be part of any business’ generic risk management strategy. Since each level of the real estate business is more or less independent, each level should consider and manage generic business risk at their level. How that is done is covered in the Risk Mitigation section of this subject.
Other than insurance, generic business risks are mostly a matter of having good internal policies and agreements. A business can act only through its agents and employees. The internal relationship between agents and employees and the business is, therefore, the source of considerable business risk. The business can find itself liable for the actions of its agents and employees. It can also find itself liable to its agents and employees.
These kinds of internal relationship risks exist no matter the kind of business. Large businesses have separate “human resources” departments to deal with internal relationships. In smaller businesses, internal relationships are handled by the owner or manager. Owners and managers must, therefore, educate themselves about the generic business risks associated with engaging agents and having employees. Tools to help with such education are covered in the Risk Mitigation section of this subject.
The most widely used, and effective, tools for managing generic risk created by being an employer are employee handbooks, office policies and written employee or independent contractor agreements. These tools help companies manage internal relationships. Managing internal relationships allows the company to manage external generic risks created by being an employer. Managing risk created by internal relationships through the proper use of management tools is covered in the Risk Mitigation section of this subject.
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