What Is A Title Company? The (Ultimate) Guide | Real Estate SkillsJul 21, 2020
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:
- 1. What Is A Title Company?
- 2. What Does A Title Company Do?
- 3. How Do You Choose A Title Company?
- 4. What Is An “Investor Friendly” Title Company?
- 5. How To Find A “Wholesale Friendly” Title Company?
- 6. How To Find A Title Company Near Me?
- 7. How Much Does A Title Company Charge?
- 8. How To Get Earnest Money Back From A Title Company
- 9. What Does A Title Company Do For The Seller?
- 10. Who Chooses The Title Company In A Real Estate Transaction?
- 11. What Is The Difference Between Escrow And Title Company?
- 12. List Of Title Companies In The U.S (Top 7)
What Is A Title Company?
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.
What Does A Title Company Do?
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:
- List the encumbrance in a preliminary title report (prelim) and require the parties to eliminate it (e.g. pay off a lien) or accept it as an exception to coverage in the title insurance policy to be issued; or
- Insure against the encumbrance by not listing it as an exception and assuming any risk of loss connected to it.
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.
What Is Title Insurance?
Title insurance policies protect and insure homeowners and mortgage lenders against monetary loss due to things like:
- Damages and property loss due to liens and encumbrances against their real estate
- Defects in the chain of title to the property
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.
How Do You Choose A Title Company?
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:
- Reputation: This is one of the most important ways to find the best title company. You want to choose a company that has helped owners, investors, and real estate agents in your market with reliable service and great communication.
- Experience: Make sure they have a deep understanding of title procedures in your local market. Make sure you do your research to see how many people this company has served. As you're working on real estate deals, you want your title company to be a trusted and reliable advisor that can answer all of your questions.
- Location: If possible, choose a local title company. You may have to connect with your title rep a few times a week, so try to build a relationship that will last.
- Policies: Make sure you do your research ahead of time. Read the actual title policies that they issue and make sure you agree with them before finalizing.
- Fees: Ask what their title fees are upfront and make sure they fit your budget. If you feel they're too expensive, try to negotiate with the company or find a better fit elsewhere.
What Is An “Investor Friendly” Title Company and How Do You Find One?
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:
- Contact your local Real Estate Investors Association (REIA) and ask them for local “investor friendly” title companies. This would be the best option for you if you don’t know any investors.
- Search on Google to identify and call several local title companies in your area and ask if they can help you with your specific needs. This is by far the fastest method.
- Connect with a local real estate investor and ask if they know any investor friendly title companies. This word of mouth marketing will often yield the best results.
How To Find A “Wholesale Friendly” Title Company?
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:
Double Closing (Real Estate Wholesaling Example):
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.
How To Find A Title Company Near Me?
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.
How Much Does A Title Company Charge?
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.
What Fees Does A Title Company Charge?
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:
- Title Search or Title Examination Fee
- Lender's Title Insurance
- Owner's Title Insurance
- Preliminary Title Report
- Settlement Fee
- Closing Protection Letter
- Property Survey
- Recording Fees
- Attorney Fees
Again, these are common fees that a title company may charge you. Though every company, state, and deal may have different charges.
Who Is The Title Company Closing Agent And What Do They Do?
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.
How Does A Title Company Make Money?
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.
- First, they charge home buyers a title search fee to look up the property’s background to make sure everything is legitimate. They will make sure that there are no past-due mortgage payments or tax liens on that property. As mentioned earlier, these fees vary by state.
- Second, they will sell both the buyer and the seller title insurance which is a one time fee. In most cases, the buyer will purchase the title insurance for the lender and the seller will buy the insurance for the buyer. Fortunately, a title insurance policy lasts forever, meaning a new property owner has coverage until the property is sold or transferred to another owner.
- Lastly, depending on factors like if they act as an escrow company for the deal, the title company may charge various fees for their services as listed in the above section.
How To Get Earnest Money Back From A Title Company
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!
How Long Does Closing Take At A Title Company?
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.
What Does A Title Company Do For The Seller?
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:
- Attorney Contracts: The title company will help the seller with all of the legal contracts and forms that are needed to sell the property. They will help you check to see if your documents are valid.
- Title Searches: The company will check public records of the property title to find any issues in selling the house. It is a way to protect the buyer and seller from any lawsuits and settle any outstanding debts before closing.
- Title Insurance: This is a requirement for most, if not all mortgage lenders. There have been cases where a title search will not show any defects and the house is sold with them. The title insurance company issues this policy to protect owners from claims that are made against the title of the property.
- Closing Paperwork: Title companies will help with all the closing paperwork that you need. They will make sure all legal documents are sent out to the right places.
- Notary Public: A title company can provide you with any required notary services that are needed to seal the deal and validate signatures.
- Lien Negotiation: Before selling a house you need to make sure that any liens the property had, are paid off. If there are any that are not paid off, it may cause delays in the closing process. The title company can help facilitate paying off liens, so the sale can proceed without falling apart.
- Closing Process: Of course the title company will help the seller with the closing process by making sure all the appropriate documents go to the right people.
Do Title Companies Report To The IRS?
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:
- Name, address and Taxpayer Identification Number (SSN or Tax ID) of the seller
- A description of the property
- Closing date of the transaction
- Gross proceeds of the transaction
- The name, address, and taxpayer ID of the settlement agent.
- Real estate tax paid in advance that applies to the buyer
Here's more on what title companies report to the IRS:
Is It Safe To Wire Money To A Title Company?
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!
What Happens When A Title Company Makes A Mistake?
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.
Who Chooses The Title Company In A Real Estate Transaction?
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.
What Is The Difference Between Escrow And Title Company?
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:
Do You Have To Use A Title Company?
Technically, you do not have to use a title company to close a real estate transaction. You could:
- Perform your own title work
- Pay the seller
- Receive a seller signed warranty deed
- Record the deed with the county clerk
- Pay off the outstanding mortgage
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.
List Of Title Companies In The U.S (Top 7)
Here are several of the top title companies in the U.S:
- First American Title Insurance Company: First American is a company that helps home buyers and sellers, real estate agents, commercial property professionals, and mortgage lenders close transactions all over the nation.
- Old Republic National Title Insurance Company: Old Republic Title hires world-class professionals. They provide exceptional customer service and make sure clients receive all the help they can get.
- Attorneys Title Insurance Funds, Inc: This title company offers training for real estate attorneys so they can learn more about the legal practices.
- Chicago Title Insurance Company: Chicago Title has been in business for over 160 years and they continue to be on the list of top title companies.
- Fidelity National Title Insurance Company: Fidelity National is of the largest title companies, issuing more title insurance policies than any other company.
- Stewart Title Guaranty Company: Stewart Title has been in business for about 125 years because they care about building strong relationships with their clients. This is why they have become one of the top title companies in the U.S.
- Commonwealth Land Title Insurance Company: Commonwealth Title makes sure their clients are very well informed about all the legal documents and the closing process. They provide various title-related services.
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!