Being in California setting up brokerages has really broadened my understanding of the business. Many things are very different here than from in the Midwest. I previously discussed some of this in my post on Standardization in Real Estate.
But nothing has been more prevalent to me than the Escrow vs. Title debate…
First let’s cover what the difference is:
Title Companies sell Title Insurance. They make the majority of their profit in the underwriting of a title insurance policy. Some estimates have put their gross margin as high as 85%! This is especially the case when Realtors and their clients don’t negotiate for lower rates. When a Realtor or client sends their transaction to one of these companies they are usually locked into using that title insurance underwriter. Title companies use W-2 / salary based employees to handle almost all aspects of the business.
Escrow companies handle the nuances of a transactions. They do not sell title insurance on their own, simply they facilitate the purchase of title insurance through an underwriter. Good escrow firms work with multiple title insurers and are constantly working with representatives from each underwriter to find the best deal for their clients. Furthermore, escrow companies don’t generally upcharge for title insurance. They find the best rate and pass that savings along to the client. Additionally, the individuals handling transactions at an escrow company are paid on a commission basis just like most Realtors and loan officers. They have a vested interest in seeing a transaction close, if it doesn’t they don’t get paid!
So this has been begging the question in my mind, why aren’t Escrow companies used more throughout the United States? Why as a Realtor wouldn’t I want to help my client by offering them unbiased 3rd party to handle the transaction? Why wouldn’t I want them to get the best deal on title instead of sending them to the title rep they’ve been using for years? Sure the title company’s employees might have been doing a good job, but is that enough? If there was an option available that handled the transaction as well or better and offered additional services why wouldn’t you use them?
Realtors: I think back to my days actively assisting clients with the purchase and sale of real estate. It takes more than one hand for me to count the deals killed by title companies. More often than not they died because a title employee didn’t have attention to detail or wasn’t willing to go the extra mile. How many times have you heard: “But I leave at 5 o’clock” or “I’m sorry I just don’t have time to get to that today.”
What if those words were gone? What if you got responses to your clients questions at 9pm? I suggest this is all possible if we keep underwriters in the insurance business and escrow companies in the processing business…
I would love thoughts from both those that this is a foreign concept to as well as those that have used escrow companies for years.