Affiliated Title Companies
NEVER USE YOUR REALTOR’S TITLE COMPANY.
A title company investigates and examines title and renders important title and closing decisions. Those processes should never be influenced by conflicts of interests like those that exist with builders and Realtors. When the payment of a large commission or profit is contingent upon a transaction closing do you really want your Realtor or builder involved in the title process?
The National Association of Independent Land Title Agents (NAILTA click here) is a trade association dedicated to preserving the integrity of the most important services of the entire transaction: the conducting of the closing and the examination and insurance of the title. CAARE welcomes NAILTA to Minnesota and wishes them luck in starting a Minnesota Chapter.
CAARE advises that you should NEVER use an affiliated title company in real estate, especially if that arrangement is between your title company and your agent, broker, lender or builder. Not only do these affiliated business arrangements eliminate competition and lead to higher prices for everyone, these arrangements also sacrifice the most important safeguards in the real estate transaction. These arrangements are often “sold” to clients as “One Stop Shopping.”
You are not “rocking the boat” by insisting on selecting your own independent title firm. In fact, you are taking away the power of your real estate practitioner to interfere with your transaction and are typically creating a safer closing environment.
Affiliations in title lead to price gouging through inappropriate means:
- Practitioners direct their clients into over-priced and conflicted service providers.
- Practitioners can eliminate competition among title companies by directing business to their in-house firm.
- Practitioners cease comparative shopping on behalf of their clients which results in higher prices and poorer title coverage for consumers.
- Practitioners influence title insurance underwriters to increase title insurance premiums, which results in higher prices.
Affiliations in title lead to higher risk transactions and more liability for home buyers
- Affiliated title companies are encouraged to close riskier transactions in order to preserve Realtor commissions and builder profits.
- Affiliated title companies may take their orders from practitioners who have a financial stake in the outcome of the transaction.
Kickbacks in exchange for referrals of title business have become far more subtle and untraceable.
- Managers who set commission splits for Realtors are often paid large bonuses based upon their capture rate of title business.
- Managers who are supposed to be supervising agents, are often pressuring them financially to steer money into their in-house firms.
- Realtors who pay office rent may receive large discounts on their rent in exchange for directing clients into over-priced in-house title firms.
- Realtors may have their commission checks paid more quickly if they use the in-house title firm.
- Realtors may receive higher commission splits if they use in-house title firms. You are paying for that extra commission.
Tip: Ask your Realtor if the title company is affiliated with any other real estate service providers like mortgage, brokerage, construction, development, home inspection, etc….
Tip: Realtors are not trained or qualified to advise you regarding title issues. Always hire an independent attorney (one not affiliated with the Realtor or a title company) to review your documents well in advance of closing.
Tip: check with your local regulatory authority to determine that your title company is properly licensed and if they have any licensing complaints.
Tip: Check with the Better Business Bureau to determine if your title company has any complaints.
Tip: Determining marketability or insurability of title requires indepth knowledge of real estate law. Make sure your title company has an attorney on staff. Tip: Check to see if your title company is a member of NAILTA.
Tip: CAARE’s Executive Director spoke before Congress regarding corruption in the title insurance industry. Click here to read his testimony.
Tip: It is a violation of federal law (click here) for a title company to give any thing of value in exchange for referrals of business.
Tip: CAARE has a webpage dedicated to business affiliations in residential real estate. Click here to access it.