It’s an exciting day. Your offer on the house that would be just perfect for you and your family has been accepted. Your children are going to go to school in Upper Merion School District, or you will be close to the great shopping or nightlife in Philadelphia, or you will finally have that little slice of heaven in Chester County for your horses, or perhaps just enough land to have a little garage to work on your Harley. You are beyond pumped for the future!
Now you have to move forward to the closing on that property. So many things to do and only so many hours in a day! Follow up on the mortgage application, go to the home inspection, get homeowner’s coverage, get title insurance…wait, what the heck is that?
Well, title insurance is a necessary expense for every home that is purchased with mortgage financing. Lenders require it so that the loan could be saleable on the Secondary Mortgage Market. It insures that the property is free and clear of all mortgages and liens that would have priority over the mortgage which your friendly mortgage originator is helping you get. It also insures that the purchaser has clear title to the property, making title insurance a wise investment to protect the single most expensive purchase the vast majority of Americans will make. Gee whiz, another thing to do? Great…
Out of the blue, your realtor comes to the rescue. “I can take care of that,” the realtor says. “I know a guy,” the realtor continues. No matter how much you want to “let the realtor handle it,” it is an expensive mistake. Probably a $300 to $500 mistake. Here’s some background that the realtor won’t tell you:
• Title insurance rates are governed by the Department of Insurance and prices are based upon the loan amount or the purchase price, whichever is higher. The realtor cannot get you a better rate.
• Most title insurance agents charge additional “fees” which are not necessarily regulated by the Department of Insurance. Typically, the title agency will tack on “junk” fees such as a courier fee, electronic document fee, wire fee, e-mail fee, settlement fee and domestic relations search fee, all of which total between $300 to $500 additional cost to YOU. Only a very few independent title companies do not charge those fees.
Why would the realtor send you to a title agency that charges you “junk” fees and not an independent title agent which doesn’t charge those fees? It’s not likely experience since the independent agents have just as more if not more title insurance experience than the companies tacking on additional fees. So it’s not experience. What is it then?
Did you know that realtors or their brokers can own interests in a title insurance company? If you are dealing with a large real estate agency, the realtor will probably try to steer you to her in-house title company, so this extra money you could use for your own needs goes to the realtor or her broker. Therefore, the realtor’s title company is pocketing an extra $300 to $500 of your money. Great for them, not so good for you.
Another reason they could be steering you to a particular title company is that the title company is secretly giving them something of value in exchange for the implied promise that the Realtor/Broker will steer you to that agency. It could be some sort of “rental space” agreement, where the title agency rents space in the real estate broker’s office, or pays for some “advertising” for the Realtor or buys and supplies the Broker/Realtor with marketing leads/services. All of these items of value are accepted by the realtor in exchange for bargaining your trust in them to steer you to a title agency where you will pay more money. Great for them, not too good for you.
Why does this go on? Because the parties involved are counting on your lack of knowledge. If you don’t know, you will assume that they are acting in your best interest. They are not.
Well, I personally am tired of this “dirty little secret.” Real estate buyers should be empowered to choose their own title insurance agents who do not have the buyers’ best interests at heart. This “dirty little secret” has been accepted for years and it is a disservice to you, the home buyer to pay more so the broker or realtor can get something additional of value from your transaction, such as profit sharing or “rental” income. It’s your money and it’s best kept with you.
It’s time to expose this “dirty little secret.” Think about it – if you multiply $500 in extra costs you paid by the number of yearly real estate transactions, it is probably in the millions of dollars diverted away from your wallet into someone else’s.
Consumers should be wary of simply letting their realtors handle their title insurance needs. Spread the word that you are entitled to choose your own title agent. Contact an independent title agency for your title insurance needs, and ask them to detail the fees they charge. Be an educated consumer, and don’t spend money you don’t have to.
Andrew J. Monastra, Esquire is an associate in the law firm of Wolf, Baldwin and Associates, P.C., which has offices in Pottstown, West Chester, and Reading. He has represented consumers and businesses in real estate transactions for over 23 years, and he is the owner of Heartland Abstract, Inc., an independent title agency located in Pottstown which does not charge junk fees. He may be reached by calling 610.323.7436, or by e-mail at firstname.lastname@example.org.