An interesting situation has come to my attention via @Talontitle on Twitter:
It seems that a major lender (a favorite of many local mortgage brokers) is refusing to allow listing agents to dictate who the title insurance provider will be when it is a joint venture relationship benefiting the listing agent’s company.
Many of the local large real estate brokerages in our area indeed have joint venture relationships with title companies. Rainier Title has partnerships with Coldwell Banker Bain and John L. Scott corporate offices and Commonwealth of the Pacific has a financial relationship with Windermere.
I haven’t brokered a loan in years since we are a correspondent lender with our own credit lines… but I understand that this lender tends to offer some very competitive rates. I am wondering what a mortgage originator would do if they have a purchase where the listing agent has designated their JV title company and this lender is offering the lowest rates that day?
What would you do? Let the consumer know and talk to the listing agent about (gasp!) switching title companies? Or work with a different lender who’s rates may not be as attractive but who will permit the JV relationship?
Many folks are starting to look down on any kind of JV. I personally think they all should be illegal. Real estate offices should not be allowed to have any kind of financial related JV, subsidiaries, marketing arrangements, side agreements, etc with mortgage and/or title companies. Neither should developers.
In this situation, I would explain to the borrower that they can get X rate if they choose their own title company. If they choose to use the agent selected company the impact is Y. Let them decide. They also have to decide if choosing another title company will result in lower or higher title fees.
I think many agents who are at the companies with JVs tell consumers “the rates are all the same” or it doesn’t matter… there actually can be quite a spread between rates, especially if a company has both title and escrow. Consumers should shop but they need to do so before the contract. Consumers can shop all WA title companies at http://www.shopwarates.com
I would love to see the brokers have to disclose their “TSP” aka title spread premium – these companies are making BANK and I’ve heard they tell things to their agents like, “when you use our in-house services, this keeps your desk fees down” …they also actively block competition by not allowing outside vendors to call on their offices. This really needs to stop. It’s not transparent to the consumer… it should be illegal.
The thing is consumers have no clue about title services, why they are needed, what is a good price, etc.
Honestly, the easiest and most effective way would be to put title services in the hands of the lender. Lenders have an incentive to shop for the lowest service cost much like we do on refinances when it comes to title services.
The most shopped service in a RE transaction is the mortgage. If the mortgage provider controlled the title selection on purchases, the cost would go down dramatically or be much more transparent since it would basically be rolled into the total lender fees.
In our area Title and Escrow (Closing) are not always one in the same as they are on the East Coast and some other “Settlement” vs “escrow closing” States. There is no way to have one uniform National response to this, as in our local area the SELLER uses Title Insurance to deliver “clear title” via the Owner’s Title Policy. So control of that would never be the buyer’s lender, since Owner’s Title is ordered and paid for by the Seller and not the Buyer. Technically they can split the “Lender’s Title Policy” from the “Owner’s Title Policy” and use two different companies, but that is rare.
If there is no loan, the Title Insurance is usually all on the seller side. The Seller typically orders Preliminary Title before the home is listed for sale, and at that point the buyer is an unknown, so knowing if they are a cash or financed buyer is also not known.
If the Title is ordered before the home is listed, and usually that’s the best time for it in the process, it is best for the Seller to order Title and for the Buyer to control Escrow. Our contracts are geared in that direction as to the defaults and language, though negotiable at time of contract.
As to differences in cost?…usually a non issue. Not enough to move the process in an entirely different direction from the current norm.
I have no Joint Venture relationships, but over the years have had them on and off. I see no difference at all. Even if the buyer were to shop based on cost, it would be best to match the lowest cost than to move Title or Escrow to the lowest cost servicer.
I’m only speaking of our area, Ardell and cost IS an issue to my clients… especially when they see the difference from my rate quote to the title and escrow providers that were selected by the real estate agents. I see this difference every day…and thanks to the 2010 GFE, I get to see the cost difference with owners policies too.
In PA, as example, there is only one all inclusive Title Policy paid for by the buyer. “Clear Title” is “delivered” via the FULL Title Search, which is not done here, and the One Lender’s Policy includes Owner’s Title.
In that case the Buyer would be in full control since the buyer is the ONLY one paying for Title Insurance AND the Title Company usually handles the closing…used to be at no extra charge.
I’ve been meaning to compare these costs from East to West Coast, as West Coast seems to add two layers of cost vs the East Coast, Owner’s Title and Escrow Services. I’ll see if I can get a HUD 1 out of PA to compare and contrast the cost differences, as my guess is that is where the HUGE cost differences are on a National scale…maybe not. Will post when I get the answer.
Here in Chicago, it is customary that the title company is chosen by the seller. In addition, the seller’s attorneys get a title commission for their work.
I see what you are saying about Owners policy and buyer’s policy. Maybe the solution is to separate it totally? Buyer gets their own policy (bundled with lender fees), seller gets their own policy from whomever they want, and lender selects company to provide the closing/escrow services.
Doesn’t seem that hard to me as lenders already select the title insurance provider on refinances.
Not sure why what happens on the east coast is important on a Seattle real estate blog since everything in real estate is local 😉
Russ, with WA, the cost of the buyers policy is greatly reduced because it receives a “simultaneous issue” rate. The owners policy is more expensive.
Because there is often a National “change” that works better in one place than another.
Clearly JV issues are national, as may be the “large lender”. Since we don’t know who that is…I have to assume it is a National vs “Seattle Local” lender.
Is the “Large Lender” in your post a “Seattle Local” lender?
P.S. …also LOCAL “common practice” should always be challenged. If we are talking about saving $50 bucks here…why NOT do an “East Coast settlement” if it saves MANY hundreds of dollars? There are reasons, mostly having to do with judicial vs non-judicial foreclosure. But clearly saving many hundreds is worth more of a discussion than a few bucks, if someone is using a National Title Company and National Lender.
Shopping Title and Escrow fees as a discussion always brings up this topic for me, as it is almost never wise to choose those services based on cost. The cost differential is NOT dramatic, as has been “insinuated”, in my experience, AND not worth the “savings” either.
I will be doing a radio segment for…CBS I think…in a week or so (after the Holiday Weekend) on choosing all of the services connected with a Real Estate Transaction. I’ll post a link after it airs.
I have a link to the lender in the post, Ardell… it’s Provident.
Provident is pretty quirky in everything they do, but sometimes they have the lowest rate in the market. I stopped doing business with them years ago, I cold not handle the odd conditions they would come up with. be happy you don’t deal with them.
that’s what I’ve heard about them, Michael… I’m spoiled working for a correspondent lender… I can’t imagine dealing with quirky conditions
We have a double-ended transaction we’re closing where title fees with the JV are nearly $800 more dollars total for both files than if they had opened title with us. The discrepancy would be even bigger but one of the transactions has a cash buyer.
yet real estate agents *want* to believe that there’s little to no difference in cost…if they accepted that there often is a significant difference, they would have to take responsibility for who the
steerreferdirect title insurance to.Here’s the actual language being used on our most common P&S contracts in the Puget Sound area.
“If Seller previously received a preliminary commitment from a Title Insurance Company that BUYER DECLINES to use, Buyer shall pay any cancellation fees owing to the original Title Insurance Company. Otherwise, the party applying for title insurance shall pay any title cancellation fee, in the event such a fee is assessed.”
Appears to me that the buyer has ultimate say on who they want to go with for their owners coverage… although, they would have to pay the cancellation fee (if any). Our state’s Insurance Commissioner’s office has been working on a new rating model that has been pushed back on the calendar a few times but, when enacted, has the potential to severely increase the customary $50 cancel fee and the fee will need to be collected every time without exception. This would essentially wipe out any opportunity for the buyer to save any money by switching title companies and therefore take away their “choice”.
I suspect that the wording will change once again on the contracts. BTW, which RE Brokerages have had the most influence over the NWMLS contracts? Sorry, couldn’t help myself there 🙂
As for splitting the lender’s and owner’s policy between 2 different title companies, I haven’t seen it done in residential. The cost of the lender’s policy would increase nearly 70%. A title company would also stand to lose it’s license to do business if they reduced their rates to match another competing company.
I started in title back in ’85 in Seattle and still at it. Escrow officers directed the lion’s share of who performed title until we convinced real estate agents to take control. A perfect scenario for major RE companies to jump into the biz!
this could be what’s causing Provident (and others) concerns about JV’s: http://www.housingwire.com/2011/06/20/first-american-title-case-going-to-the-supreme-court
It totally smells like a respa violation to me… that agents can s
teerdirect title and escrow to favored providers that their companies have an interest in.This is straight from the case opinion:
A 1982 House Committee Report noted that these practices could result in
harm beyond an increase in the cost of settlement services:
[T]he advice of the person making the referral may
lose its impartiality and may not be based on his pro-
fessional evaluation of the quality of service provided
if the referror or his associates have a financial
interest in the company being recommended.
[Because the settlement industry] almost exclusively
rel[ies] on referrals . . . the growth of controlled
business arrangements effectively reduce[s] the kind
of healthy competition generated by independent settlement
service providers.
RESPA Section 8 (a) is clear. Buyers cannot be forced to use a specific Title Co/Settlement Service provider when a federally related loan is involved. PERIOD. One of the greatest marketing coup de’ eta’ for any title insurer is the allowance of Agents to reference them in the MLS internal system.
Here is a list of settlements involving Title Insurers including main parent Title Insurance companies:that pretty much sums it up
I was in the title biz from 86 – 2000… when I became a title rep, escrow companies pretty much directed where the title would be opened…sometimes lenders would direct as well. The shift to real estate agents directing happened around ’91 …I remember (as a title rep) we would encourage agents to order a title on their listing so that they could address issues and try to control the title…we called it “pre-title” or “tbd’s”.
I would love to see a shift in who controls title insurance out of the RE brokers (who are making big bank with their JVs) to the consumers and the lenders — the parties who are actually receiving the insurance.
I think this is a Dodd-Frank change that’s coming but we haven’t seen rulemaking yet. I think Provident is trying to get a handle on it in advance.
It’s the next step in dismantling NAR.
Pull out the services people really need to close…from the Brokerages.
Pull the “additional” revenue streams from an already sinking Brokerage ship.
The Pigs Get Slaughtered…or if you don’t like that one…try a “comeuppance”.
When the real estate industry did nothing to help consumer costs when prices skyrocketed and houses sold in 3 freakin’ hours…they asked for it.
When the agents stopped being the Fiduciary in the room and making sure ALL the ancillary services were in line for the client…they asked for it.
Divide and Conquer.
…For Whom the Bell Tolls…and all that.
I was quoted in Realty Times in 1996…that’s 1996!…telling the RE Powers that BE…if you don’t get in front of this on behalf of the buying public…if you don’t get Buyer Agency DOWN…someone’s gonna do it for you.
Here they come…again.
Put a cap on your commissions people…the sky is NOT “the limit”.
Not talking to you guys in the comment stream, of course. LOL!
I do believe that RE agent’s commissions will be next… they had a part in the housing crisis by pushing homes, pushing clients to buy more expensive homes, installing fear of non-stop inflating sales prices, encouraging more risky loan products to qualify for more…etc.
Of course not all agents did this, just like not all mortgage originators were predatory…but I do believe we’re going to see big time changes… the difference between real estate agents and mortgage professionals with Congress is the NARs incredibly powerful lobby.
The reality is that the costs associated with buying and selling a house on a combined basis are just WAY too much money. When people bought a home with a 30 year loan expecting to have a PAID note one day and own their home free and clear, the costs were not multiplied so many times in one person’s lifetime. When that changed to the average buyer staying 7 years or less…the industry got too big for itself.
There’s going to be a major shakeup on all fronts, including people not buying a home they don’t plan to stay in for a very long time.
Ardell, is there more or less to selling a home as compared to 10 or 20 years ago? How has the internet impacted what you do as a real estate agent?
When representing a seller (which is what I assume you mean by “selling a home”, since that is not what I am doing when I represent a buyer client), I spend a lot more time before the home goes in the mls than 10 to 20 years ago. There was no internet…no 15 great photos to get together, 1 black and white shot done by the mls for agent use only.
That change to 15 online color photos that the consumer can see has resulted in a lot more work getting ready for “picture day” and not about “taking photos”. I spend a good ten solid full days or more most times getting the home ready to BE on market. Once it’s in the mls, a lot of the hardest work is done.
The process from listed to sold hasn’t changed much, it’s the before listed work that has changed due to “online presentation”. People used to come and see…now they decide whether or not to come and see based on those photos. It’s usually a “team” project with things I do and the things the seller does, but I still “orchestrate” the things they are doing in addition to doing “my” things. For me that includes staging of occupied homes and light staging of vacant homes. That has become a huge amount of extra work making sure the presentation encourages showings BEFORE it is entered in the mls.
The issue though is not about more or less work as much as the change in home prices. In areas where the average sold price is $40,000 to $150,000, as with some of my friends who work in parts of Florida or doing Philly row homes, the issue of % too high is clearly not the case. That is why a “national” crackdown on % charged is not in order.
In areas where prices jumped from $150,000 to $200,000 median to $400,000 to $600,000 median over that same 10 to 20 years, and the cost to the consumer expanded as a result…is more the issue.
For the most part the break even runs in the $350,000 range. If the are selling for $350,000 and also buying for $500,000, then the cost advantage can be captured based on the “total project” of out and in. Another reason why the brokers on the street have to adjust accordingly, vs a national crackdown on cost of agent services.
BUT if the brokers don’t do that…then they get what they deserve…someone else who doesn’t understand these issues just coming along with a big hatchet. The industry fails when it doesn’t “police” itself and do what I call “fair it out”.
This weekend I am working my poor body to the bone getting a home ready for market that is a low price and a discounted rate BUT they bought their new home from me and that was much less work. So I balance out the two, vs pricing each on their own. That seems to work out well for everyone involved.
Discounting on the sell side of a sell and buy equation is usually best for the client, vs on the buy side.
The point of online brokerage has been to bundle services for those multiple income streams to brokerages. The rebate, in theory could have been used for mortgage, title, and escrow fees if the rebate programs had been allowed to progress. The change in the market fixed that.
Banks have to take the greater lion’s share of defrauding the global Real Estate market. Mortgages were sold on the secondary market as a stand alone product. The mortgage industry drove up the price of property, globally because they never had to care about being repaid. The loans were turned multiple times, sold to people who believed these were secure instruments.
What we need is for the banking industry to start taking some responsibility, and some losses. The consumer should demand full, and total disclosure from a Real Estate transaction including mortgage fees, title, and escrow.
David: odds are I already know what you’re going to say on anything I post before I read it.
Here is a comment from Scotsman over at Seattle Bubble:
“As late as 1980, the U.S. banking industry was relatively unconcentrated, with 14,000 commercial banks and the assets of the five largest amounting to 29 percent of total banking organization assets and 14 percent of GDP.
Today, we have a far more concentrated and less competitive banking system. There are fewer banks operating across the country, and the five largest institutions control more than half of the industry’s assets, which is equal to almost 60 percent of GDP. The largest 20 institutions control 80 percent of the industry’s assets, which amounts to about 86 percent of GDP.
Rhonda,
Thought of you and this post today as I am ordering Title and Escrow on a new listing. I am checking the cost differential, BUT…that said…I am still ordering both from the BEST place regardless of cost. It’s important to “shop cost”…but that almost NEVER means choosing by cost when it comes to Title, Escrow and Home Inspector.
Of course choosing Lender by rate is different because it has a 30 year impact vs a “one time only fee difference”.
Ardell, last week I closed a transaction where two big banks couldn’t do it… it was suppose to close in April and we saved it…choosing a lender by rate alone is not something I recommend unless you don’t care about service and having the loan close. With that said, my rate was lower than what my client was obtaining before from the bank too.
“Shopping for lowest rate” means squat if the loan doesn’t close.
An agent’s commission is a significant part of the transaction, even though it’s a one time fee, do you recommend that buyers and sellers find the cheapest agent or attorney? That could save them THOUSANDS…probably more or as much on then they would on an 0.125 with their mortgage if you consider the average person does not hold their mortgage full term.
Most often Rhonda, my clients have no issues that would cause the need for having the best ability to close lender. Sometimes, but not often. They all close easily. That is something I have to determine for each client separately and not a one size fits all “need”.
When my client is salaried, has 25/25 ratios, an 800 credit score and NO issues of concern from a lending standpoint. “best ability to close” is not a high factor in choosing lender. Sometimes it boils down to cost and rate for those clients, and I have many clients like that. ALSO when the clients know everything about lending and don’t have lots of questions…that is also a factor.
You said: “Shopping for lowest rate
Ardell, it’s not a fear tactic, it’s the truth. I deal with borrowers constantly who email me in search of advice from my blog who’s are in bind because their LO who had the lowest rates didn’t pan out.
Did I miss where you addressed shopping for agents by the lowest commission?
Ahh…I see. You are talking about those sleazy liars. LOL! Yes, no. I said that strong buyers DO need to shop rate…I will add BUT only among “reputable” lenders. 🙂
I instruct them to shop when they can lock…not beforehand, as you catch the liars real fast when they won’t lock or send you the lock in writing. One of those “Liar Lenders” quoting 1% less than everyone else said “but it can’t be locked until after the appraisal and ‘may’ change by that time”. That is so hard for the consumer because 1% less than everyone else sounds too good to be true.
My rule is Rates are what the are…with slight variance from one lender to another, most of the time. HUGE variance in interest rate with all other things being equal looks “Too good to be true” because it isn’t true.
I have an issue now like that. A Company is saying that their preferred lender for employees is giving only employees of that Company a lower rate and NO COSTS…none, not even appraisal fee. Is that even legal under the new law that lenders treat people equally?
Still not seeing where you’re addressing shopping for real estate agents by lowest commission, Ardell.
Lowest Loan RATE is like Lowest Price for House for a Buyer and Highest Price for House as a Seller. So yes, that is the same.
Of course the Buyer wants the lowest interest rate on the loan and the lowest price for the house. Lowest Agent fees or lowest Loan Broker fees is not necessarily going to give you that result. Lowest RATE on the 30 year loan is more important than up front costs and lowest price for the house is more important than the cost of the Agent Service.
Clearly every home buyer wants lowest price for house and lowest interest rate, as they should. Not sure why you think a buyer is wrong to want lowest interest rate they can get from a reputable lender. Seriously? You thing rate doesn’t matter?
the difference between 4.5 and 4.625% on a 30 year fixed loan with a $300,000 loan amount is $22.36 per month. It will take a lot longer to make up that “cost” over 0.125% in rate than cutting out cost upfront. In one year, the savings is a whopping $268.
Rates do matter. LOs no longer have the ability to price rates based on what they feel their compensation should be. The consumer has full ability to decide how they want their rate priced and it makes no difference to the mortgage originator since April of this year. Rates do vary from company to company and throughout the day.
My point to you is – if a consumer is really looking a saving money, it’s not an 0.125% improvement in rate they should be focusing on, that’s a diversion.
In this climate, borrowers should be seeking out experienced mortgage professionals who charge a fair rate.