Why is selecting an independent title company so important?
Two reasons basically. By selecting a title company that is not bound by what’s known as an Affiliated Business Arrangement, you eliminate potential conflict of interest and generally save money.
When buying a home, you will be working with three groups of people: a real estate agent, mortgage lender and your “settlement team.”
The title company, such as Federal Title, is your point of contact in that last category, but a settlement team also includes title abstractors, land surveyors and recorders.
Buying a condo, coop, townhouse or a single-family home is a complex process that involves legally binding contracts and in many cases large sums of cash. By having three independent groups working on your transaction, you establish a system of checks and balances working in favor of you, the homebuyer.
Did you know some companies have interests in all three aspects of your real estate transaction?
These behemoth companies encourage their agents to “steer” homebuyers through every aspect of the homebuying process and claim “one-stop shopping” is more convenient to the homebuyer even though a study commissioned by Federal Title last year shows it can be excessively expensive.
How can a Realtor®, for example, who has pledged to represent the best interests of his homebuyer, at the same time refer that homebuyer to a more expensive title company because of a pre-existing agreement stating the title company will share a portion of its profit with the referring agent’s company?
And while homebuyers have been the focus of this article so far, homeowners who are refinancing should also go independent because they are affected, too. These real estate behemoths have ventures in the mortgage lending industry, who also participate in this profit-sharing arrangement.
Plain and simple, referral fees increase closing costs, and that’s not consumer friendly. Some reports show 50 percent or more of title insurance premiums went to real estate and mortgage lending companies for referral fees, while only 5 percent went toward insurance claims, according to the Government Accountability Office.
This practice, a product of the Affiliated Business Arrangement, is legal but anti-consumer. It may not seem like a big deal to the average homebuyer. But Web savvy homebuyers are finding that selecting an independent title company can literally save them thousands of dollars in closing costs.
In the case of Federal Title, an independent title company that does not participate in the practice of ABAs, homebuyers receive an instant discount on their closing costs, which represents in dollars what other companies are “kicking back” to their referral sources because of ABAs.
Homebuyers’ best protection against high closing costs is education – simply knowing they have the right to choose their title company, asking about discounts and learning about what options are available.
Homebuying is a big deal. It’s life changing stuff. Do you want to pay more money so a one-stop shop can steer you through the homebuying process, or do want to assemble your own team of independent experts to guide you through the process at a price that’s fair and competitive?
In an apples-to-apples comparison it’s clear: When you go independent, you save.