According to a survey from American Land Title Association (ALTA), 50% of homebuyers chose their title company, while 35% of those who didn’t choose said they had help from a Realtor to select one.
The process of buying and selling homes can get complicated. That's why you need to have a reputable title company on your team to help you through these important transactions.
If you've been around the real estate business, you've certainly worked with a title company in some capacity. But, you may still wonder:
What exactly is a title company? What does a title company do? What is a title company responsible for? What is title insurance? How do I benefit from working with a title company? What does title to a property mean? How do I choose a title company near me?
You're in luck because you're about to enjoy What Is A Title Company: The Ultimate Guide! Use this jump menu to get to the section of your choice:
A title company is a neutral, third party organization that works on behalf of buyers, sellers, and mortgage lenders to facilitate the closings of real estate transactions. Interchangeably referred to as a title insurance company, this organization investigates the title history of a given property to verify the legitimate transfer of ownership from one entity to the next.
Primarily, a title company searches public records and seeks out available information on a property regarding any existing encumbrances. An encumbrance is a claim or lien on the title to a parcel of real estate, such as
Through issuing a title report, a title company aims to provide a level of clarity and insight for buyers, sellers, and mortgage lenders, as to what liens are associated with a particular property.
Look at them as an essential party for real estate transactions to run smoothly, while minimizing risk for all parties involved.
One of the main responsibilities of a title company is to provide title insurance. To do so, the title insurance company attempts to identify all encumbrances currently associated with a parcel of real estate. This is referred to as a title search.
Here's an ad from a title company that illustrates what goes on behind the scenes:
If any liens or claims show up on the title, the title company will either:
Once all parties agree to move forward, the title company will issue a title insurance policy. Title insurance protects the insured party from the risks of monetary loss in connection with title issues that aren't known or aren't listed as exceptions on the policy.
Title insurance policies protect and insure homeowners and mortgage lenders against monetary loss due to things like:
Another thing these companies can do is procure a property survey. Property surveys are given to home buyers to determine land boundaries and the existence of any easements or encroachments.
Additionally, in some real estate markets title companies act as escrow officers. This means they are in charge of maintaining escrow accounts for their clients. In these instances, home buyers will send earnest money deposits and closing funds directly to the title company. They then make sure the home seller provides legitimate legal documents for the transfer of ownership.
Whether you've found the home of your dreams or your next fix and flip investment opportunity, you might be wondering how to choose a title company.
Here are a few ways to help you choose the perfect title company:
An investor-friendly title company will do the same tasks as other title companies, however, they are particularly familiar with real estate investing, assignment agreements, double closings and back to back closings. These companies frequently work with real estate investors and wholesalers.
If you are not sure how to find one that is investor-friendly here are some recommendations:
If you're specifically looking for a wholesale friendly title company, here are some tips. Reach out to several title companies near you. Start the conversation by asking them if they work with investors and if they're able to perform a double closing, also known as a simultaneous closing. If so, you might follow up by asking if they can do it with single-source funding.
A double closing simply means that they can facilitate two closings on the same property on the same day - a profitable strategy for real estate wholesalers. Let's break it down:
Wholesaler B agrees to buy a property from Seller A. Investor C agrees to buy the same property from Wholesaler B for $20,000 more than the original price. So, Wholesaler B lines up two closings back to back, so that he owns the property for less than one day!
That $20,000 difference is referred to as a wholesale fee, which is how real estate wholesalers make money.
Normally, Wholesaler B would complete this deal using money from a lender who provides transactional funding. With single-source funding, Wholesaler B would use the money from the B to C transaction to fund the A to B transaction! While this is not allowed all the time, the key is having Investor C fund the transaction first and sign an authorization letter. Oh, and working with a wholesale friendly title company never hurts!
Make sure you are properly communicating with the title company about everyone who is involved and where the funds will be coming from. Title companies that are capable of doing this will let you know right away. Most of the time, title companies will do a double closing, but without single-source funding.
Finally, to identify a title company friendly to wholesaling real estate, make sure they are familiar with contract assignments. Most title firms in the U.S will be familiar with assignment contracts.
To find a title company near you, simply go on Google, and search for a "title company near me" or "title company [your city]." You can also browse through online directories like:
You can also ask any real estate professionals such as investors, agents, brokers, landlords, and insurance brokers in the area you are looking to invest in. Referrals from active real estate professionals can give you some of the best results.
However, take the measures that were mentioned earlier in the article on how to find the best title company near you. Make sure you try to find the company that best suits your business model and will be there for you when things get down to the wire.
A title company provides a range of real estate services and thus you should expect to pay a variety of fees. Title fees range from a few hundred dollars up to several thousands of dollars. These title fees are usually due at closing and vary depending on the selected services, type of title insurance attained, and the value of the title policy.
Closing costs paid to the title company also depend on the amount you are borrowing from a mortgage lender, the location of your property, and the type of mortgage. They will usually end up charging you around 1%- 5% of the total purchase price.
Here's an example of a closing statement that lists the title charges on a $185,000 distressed property that we purchased in Illinois:
A title company will charge you several fees that will vary by the property value, loan amount, the location. Here's a list of some of the fees a title company will charge:
Again, these are common fees that a title company may charge you. Though every company, state, and deal may have different charges.
Title company closing agents are those who help with what's referred to as the final step of the closing process when you buy a home.
Title closing agents make sure all signatures are properly executed on closing documents. They'll also receive the cash to close from buyers, then issue that money to its appropriate destination - whether it's directly to the seller, mortgage company, or elsewhere.
Once all documents have been signed by both the buyer and seller, the closing agent will issue the title commitment. They also collect and organize all other paperwork, including the settlement statement, promissory note, and any required real estate disclosures.
They will transfer the deed, record it with the county, and give your payment to the seller.
Real Estate Skills Tip: Make sure all the numbers are confirmed with your title closing officer and real estate broker before sending your final payment. You might not think you need to speak to the closing agent until the end of the process, but it's a good idea to reach out to them throughout the process to make sure everything is moving in the right direction.
You might say to yourself at some point, “My title company does so much work and their fees are relatively small. How exactly does a title company make money?”
Title companies make money by doing a large volume of transactions, which they monetize in different ways.
As a home buyer, you may be able to get your earnest money back from a title company if the purchase agreement states you are allowed to do so. If you want to back out of the deal while any of your contract contingencies are in place, you should be able to get your earnest money back. These "escape clauses" include:
In most standard real estate contracts, an earnest money deposit is refundable until all contract contingencies are removed by the buyer. However, this is very contract specific and you should consult with a real estate attorney, real estate broker, or title company if you're unsure of the status of the earnest deposit.
This is why you must read and understand all the legal documents before signing!
The physical closing at a title company can happen throughout a single day, although it usually takes several days at a bare minimum to close on a house.
Expect to be in contact a few times a week depending on how fast you want to close the sale. There is no need to rush a real estate closing. You should always make sure you understand everything that you are signing, including all the disclosures and legal implications.
Make sure you have all of your questions answered. Never be afraid to ask questions during closing. This is your money, your property, and your time on the line. Buying a house can be the biggest financial decision of your lifetime. Chances are you will not understand all of the documents presented to you if it is your first time closing on a home.
Take your time, as it's important to be careful throughout the whole process. If you are not careful, the issues that can arise may take up much more of your time later on.
Selling a property might be one if not the biggest and most time consuming financial transaction you will ever face. You might be able to get by selling your house for sale by owner (without a real estate agent), but you'll definitely need the help of a title company.
Here's what a title company does for a property seller:
Yes, it is required that all title companies report to the Internal Revenue Service (IRS). This is a result of the Tax Reform Act of 1986 to strengthen taxpayer compliance. The following is a list of requirements that are reported to the IRS:
Here's more on what title companies report to the IRS:
While wire fraud is an issue that runs rampant in the real estate industry, a wire transfer is one of the most reliable and fastest ways to send large amounts of money. It is regarded as a safe way to transfer money to a title company for a real estate settlement.
Money wires are done electronically and senders need the recipient’s bank information to initiate the transfer. Wires can be sent and received within the same day.
Before you send out the money make sure that you call to verify the name, address, bank account number, ABA or routing number, and the wire amount. You don't want to send money to the wrong account. Once the money is wired to an account it is almost impossible to reverse the transaction, so be sure to check multiple times before finalizing!
If the title company makes a mistake, you can talk directly to the title company. If the company has a good reputation, they will most likely try to help fix the problem right away.
Depending on how serious the situation is, if a real estate attorney is needed, and it was the company’s fault, then they should agree to pay for the attorney and all other costs.
This is one of the reasons why there is title insurance. If you have a comprehensive policy, you should be protected from any monetary loss that incurs as a result of issues per the title commitment.
You might be wondering who gets to choose the title company in a real estate transaction. The answer is that it could be either the buyer or the seller. This choice is predetermined in the real estate purchase agreement contract.
In a hot real estate market where there is a high level of competition, buyers are more willing to let the seller choose the title company. When it's less competitive, the buyer has more leverage to choose the title insurance company. After all, title insurance is primarily for the benefit of the buyer.
The truth is that real estate agents often end up choosing the title insurance company in a transaction. Since most traditional buyers and sellers do not know or have a preference for any particular firm, they lean on the Realtor for guidance. While it is generally illegal and frowned upon, title companies may even give "kickbacks" or incentives to agents who refer them business.
An escrow company is involved in opening a real estate transaction, maintaining the escrow accounts, and closing the real estate transaction. In some real estate markets, title agencies carry out all of those tasks in addition to issuing title insurance. Escrow companies simply do not participate in real estate transactions in these markets.
In other markets like California, title companies primarily issue title insurance policies and perform title work, while escrow companies open and close real estate transactions.
Here's a quick video explaining the difference between escrow and title companies:
Technically, you do not have to use a title company to close a real estate transaction. You could:
However, you would be extremely ill-advised not to use a title company.
There are many variables, legal procedures, Federal tax requirements, payoff amounts, and other moving parts to seamlessly close on a property. Unless you're a specialist, odds are something is going to fall through the cracks and you could end up in serious trouble.
Closing a deal with a title company is well worth the money. It could end up costing you way more money if anything goes wrong.
Here are several of the top title companies in the U.S:
If you're interested in learning more about any of these title companies, go ahead and click on the above links which will direct you to their websites.
The process of selling or buying a house can seem like the most stressful and drawn-out financial transaction of your life. However, title companies help both buyers and sellers make the closing process smoother without many hiccups.
Remember to always do your research, get a referral from an experienced real estate investor or Realtor, and ask all your questions before choosing which title insurance company to work with.
Make sure you have received help from either a real estate professional or property owner who can recommend solid title companies so you aren’t going around wasting your time and money.
We hope this Ultimate Guide gave you the confidence you need to go out there and crush it with your next real estate transaction!
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