Title insurance premiums: Who’s getting paid? (Part 2)
Initially we looked at how title agents receive the majority of the title insurance premium as commission because take the hit should a title insurance claim arise down the road. In addition to title agents receiving a commission from the title insurance premiums, it is a little talked about fact that real estate brokers receive the bulk of title insurance premium commissions for the referral of business to a title company.
Such an arrangement is known as an “Affiliated Business Arrangements” or “ABA.
Through an ABA, a real estate agent refers her homebuyer to the affiliated title company. The title company, in exchange for the real estate agent referring the deal, shares upwards of 50 percent of the title insurance premium commission. On the average District of Columbia transaction, this means that the real estate broker is earning approximately $1,100 from the title insurance premium paid by its homebuyer.
On its face, the arrangement is nothing short of an old-fashioned kickback arrangement. However, thanks to a strong lobby by national real estate associations, federal regulations provide a specific exemption making it a “legal kickback” which allows real estate brokers to profit on the backs of their homebuyers (whom they often represent through buyer/broker agency agreements).
It is the homebuyer’s legal right to choose her own title company and, the ABA kickback arrangement, is yet another reason why it’s important for the homebuyer (the consumer) to shop for a title company.
By choosing an independent title company (i.e., a title company that does not kickback money to the real estate broker), the homebuyer is much more likely to pay less for settlement services. An independent title company tends to be more competitive on settlement fees simply because they don’t have to share their revenue with the referral source.
If a real estate agent refers you, the homebuyer, to a title company you should ask the agent the following questions: “Is this title company affiliated with your brokerage?” or “Does this title company share its profits with your brokerage?” If the answer to either question is “Yes,” then I would strongly encourage the homebuyer to shop around and compare pricing against an independent (un-affiliated) title company.
A very quick Google search for a comparison quote will likely result in saving a lot of dough.
Looking for an independent title company? Federal Title & Escrow Company is independent of any affiliations and does not share its revenues with referral sources. Instead, we pass along substantial savings to the homebuyer.
Get a quote and compare our pricing with the title company referred by your real estate agent.