Real estate brokerages are allowed to own title insurance companies, mortgage companies and other “settlement service providers.” The Colorado Real Estate Commission merely requires that such arrangements be disclosed in writing, along with a warning that the fees charged by settlement service providers can vary.
Both title insurance and loan costs do vary substantially. Title insurance exists to insure buyers (and their lenders) that the property is being transferred free and clear of any liens. Policy rates are filed with the Division of Insurance and are pretty competitive. Also filed with the state are “reissue rates” based on how recently title insurance was purchased, such as when the seller refinanced his mortgage. Reissue rates and the fees for conducting the closing can vary significantly. I’ve seen closing fees as low as $100 and as high as $700. Don’t let your agent steer you to utilize their in-house title company without asking about the reissue rate and closing fees.
Lenders are also highly competitive, and your broker’s in-house mortgage company may not offer the best deal, when you factor in not only interest rates but the other fees associated with getting a loan. Request a “Loan Estimate” from multiple lenders.
Almost all large and many medium-size brokerages own or have a financial interest in a title company and/or lender, and, if so, you will be presented with an “Affiliated Business Arrangement Disclosure” when you hire an agent from one of those companies. That disclosure will contain the following statement: “The rates quoted by these companies may not be the lowest available and are subject to change.”
In addition, the standard state-approved listing and buyer agency agreements state that the seller or buyer “acknowledges that costs, quality, and extent of service vary between different settlement service providers.”
What concerns the Real Estate Commission is that consumers typically do not “shop around” and typically accept the recommendations of their agents to use their in-house title company and/or lender.
Before starting Golden Real Estate, I worked at two brokerages which owned both a title company and a mortgage company. Although broker associates were free to recommend other title companies or lenders to their clients, we quickly learned that agents who “captured” clients for the title company and mortgage company were favored by the managing broker when it came to dispensing relocation and other leads.
Ideally, an agent will give you two or more title companies and lenders from which to choose. Even so, that agent is likely to “sell” the client on using his brokerage’s own title company or lender, without it being obvious to the client how the use of that title company or lender benefits the agent.
I don’t know if this is still the case, but when I was with my first brokerage, the company-owned mortgage company would provide free business cards and free flyers for our listings, in return for letting the lender promote itself on the back of our business cards and flyers. The toll-free number listed for the lender on those business cards and flyers was unique to me, which allowed the mortgage company to know that the call came from my business card or my flyer. I know that this information was provided to my managing broker so that she, too, would know that I was “playing the company game.”
Typically, the seller, through his agent, selects a title insurance company, which is listed in the MLS, for purchasing the “owner’s title policy” which guarantees free and clear title to the buyer. Theoretically, the buyer can select his own title company, but this is rarely done for two reasons.
First, the seller typically pays for the owner’s title policy. If the buyer wants to change that selection, he is expected to assume that cost, typically over $1,000.
Second, if the buyer exercises his right to select a different title company for the policy which covers his lender for the amount of the mortgage, the cost for that “lender policy” will be much higher than it would be if purchased as a “piggy-back” policy from the seller’s title company. As a result, the buyer almost always goes along with the seller’s choice of title company to avoid paying significantly more for coverage.
Golden Real Estate has no affiliated business arrangements and has no plans to enter into such arrangements.
Published Jan. 12, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.