A Defense of the Title Industry

Written by Luke Bacigalupo on 2024-06-05. Posted in Article.

As a title attorney, one of the most common questions I encounter is about the cost of title insurance and title fees. Many homebuyers and property investors often feel that title costs are high. However, it’s crucial to understand the dynamics behind these fees and why they are not overpriced. I know you are thinking, “oh wow, a title attorney posting a defense of the title industry…”, but I have some valid points here…

The Power of Consumer Choice

First and foremost, it’s important to recognize that consumers have the ability to shop around for title services. This is a principle that Federal Title has fervently pushed since our founding in 1996. If a consumer takes even twenty minutes to shop title costs, they could save hundreds to thousands on title fees. This means that you, as a buyer, are not locked into a single provider and can compare fees from different title companies to find the best deal. This competitive market ensures that no single company can excessively mark up their prices without risking the loss of business to more reasonably priced competitors.

I also urge you to look at title fees from a value for services provided angle. Title companies are one of the only law services where consumers are not billed at an hourly rate. Consumers are offered access to a team including a client relations manager, settlement processor, and a settlement attorney that spend a minimum of ten hours to ensure your property is clear, marketable, and protected. This doesn’t account for time spent drafting documents, responding to phone calls, and answering emails. At Federal Title, you are spending a total of $1,175, typically less with the REAL Credit Program, for those services. Meanwhile, retaining an attorney for the same service would otherwise bill you at an hourly rate between $250-$500 an hour.

State-Regulated Rates

In many states, title insurance rates are regulated and filed with the respective state insurance commission. This regulatory oversight helps to maintain fair pricing across the board. States ensure that rates are set based on actuarial data and risk assessments, which means that you’re not paying more than necessary for the protection you receive. The regulated rates are designed to reflect the true cost of providing title insurance, including potential claims and administrative costs.

The Unique Case of DC, Maryland, and Virginia

When it comes to the DMV area (District of Columbia, Maryland, and Virginia), the scenario is significantly advantageous for consumers. Properties in these areas change hands frequently, which often qualifies buyers for a reissue rate on their title insurance. A reissue rate is a discounted rate available when the title policy is being reissued, typically because the property has been sold or refinanced within a certain period. This frequent turnover helps to keep title costs down for subsequent buyers, making title insurance more affordable in the long run.

The Role of Claims

It’s also important to consider the role of claims in the pricing of title insurance. In 2023, the title industry paid $638 million in claims, according to the American Land Title Association (ALTA), as reported by The Washington Post. This substantial payout highlights the critical function of title insurance in protecting homeowners and lenders from potential losses due to title defects, fraud, or other issues that might arise after the purchase. The cost of title insurance includes not only the insurance itself but also the assurance that any valid claims will be covered, safeguarding your investment.

Market Strain: High Rates and Low Inventory

Current market conditions, characterized by high interest rates and low inventory, are placing significant strain on the housing market. This situation is making it increasingly difficult for many people to afford homes. Instead of pointing fingers at the title industry, which plays a crucial role in ensuring the security and legality of property transactions, it would be more productive for the Federal Reserve and other policymakers to explore substantial ways to make homebuying more affordable, i.e. loan programs, first time homebuyer incentives, state transfer and recordation taxes. One example, if you have bought or sold property in the DMV subject to a condo association or HOA, the miscellaneous fees like set up fees, transfer fees, move in and move out fees, third party statement request fees, and resale document processing fees, have no mandated cap and are coming to rival the cost of the settlement company.