Title Companies v. Attorneys

Once a home is under contract, and sometimes even before, buyers will be asked if they have a settlement agent in mind to handle their closing. Some buyers opt for attorneys, others request a title company to handle the closing, primarily to avoid the attorney fees. After all, the insurance is the same after the closing, so why pay any more for the same service?title ins.jpg

Fair question.

I have in front of me a 56 page document that was just released by CRA International, a national research organization that studied the HUD-1 costs across the country and tried to determine how much extra buyers spend on attorneys instead of going straight to the title company and closing it with them.

The argument that settlement companies have made is that attorneys are expensive and unnecessary for these transactions. Without competition, attorneys would force the price of home loan settlement sky high and the consumer would be punished. The attorneys argue that in fact it is the title companies that keep prices high. They claim that title companies may charge less in the form of a “closing fee” but they more than make up for that discount in the price of the insurance policy that they offer consumers. Attorneys are able to price title policies from different companies and that brings price down.

The study looked at 839 financings that occurred in a single 12 month period, and included 366 new home purchases and 473 re-fi’s. In the case of re-fi’s, there are occasions when the lender actually performs the closing. So, in Virginia for instance, 50% of the cases studied were closed by settlement companies, ~30% by attorneys and ~20% by the lenders directly. Across the entire study 60% were closed by settlement companies, 17.4% by attorneys and 22.7% by lenders.

The empirical evidence is that the attorneys are correct that title companies charge more for their policies, but they are wrong that it always costs more overall. The study showed that in states where Attorneys handle all the closings by law and the states where settlement agents are dominant the charges are roughly equal. There does not appear to be any influence that regulations have on the costs of closing a loan. In states, such as Virginia, where consumers have a choice, the numbers that make up the total for closing costs may be different, in the end, the costs are roughly equal.

The CRA study found that “High or low closing costs appear to be at least equally – and frequently more strongly – associate with a wide range of other factors (such as details of the loan, the characteristics of the state or loan area, and the characteristics of the borrowers);” Translation: While different loans cost different amounts to close, it is based on size of loan, credit score, local taxes (GRANTOR TAX!!!) and other factors, not who the settlement agent was.

So, what does an ambiguous study tell us about how buyers should choose their settlement agent? Very little. Instead, it says that the price conscious buyer isn’t going to save money. So the question that a buyer needs to ask is, “How will I best be served?” Given that settlement companies are not allowed to act as attorneys or provide legal advice in the case of legal issues arising, my advice is to stay with a local attorney who can represent you if you need it. The cost of bringing a lawyer on board down the road is much higher than having them with you from the start.

Buyers Agents and Compensation

I received an e-mail yesterday announcing that a builder is offering 5% compensation to buyer’s agents who bring acceptable offers on their homes. The rationale behind such an offer is simple. If the builder agrees to pay 60% more than other builders, perhaps buyer’s agents will be willing to sell their homes harder. Another way to put it: It’s a bribe.


Buyer’s agents are here to represent their clients. The problem is, some agents never discuss compensation with their clients. When an offer of 5% compensation arises, the agent may be able to then collect 5% on a sale. However, if the client and the agent hammer out a negotiated rate for services, when there is a 5% commission offered, the agent can show the property and let their client know that if they select one of these homes, that they can expect a rebate of any amount above the negotiated commission at closing.

Likewise, if a listing pops up in which the seller is offering a cooperating compensation lower than a negotiated rate, Buyers will know their agent will give fair representation to that property. Clients can know that their agent will want to show them all properties, regardless of what the seller is offering because there is no disincentive to show a specific home.

Negotiating a commission up front is in the best interest of the client, as it puts all listings (listings from the MLS and unrepresented sellers) on an even playing field. It aligns the efforts of the Agent with the best interest of their client, and it provides the basis for establishing expectations between the client and agent.

An Agent Representing the Agent, aka Dual Agency

Originally Posted February 17, 2009

To understand how Dual Agency has come about, one needs to think just over a decade back two decades to the days where every real estate agent worked for the seller. There were numerous reports done that showed that most buyers thought their agents worked for them, but they were wrong. Every agent worked for sellers, either as the listing agent, or as a “Sub-Agent” to the seller. This also helps to explain why commission is typically paid by the seller to both the listing agent and to the selling agent. (Look for an future post on Divorcing Commissions) Read on to see why Dual Agency should be called Non-Representation

In these days, a buyer would find an agent to work with, and would then go house to house while the agent representing each seller, not their buyer. Technically speaking, it would have been unethical to suggest a lower price than asking, it would have been unethical to point out deficiencies in homes such as Quest Pipes, Asbestos tiles, Masonite siding, highways that might bisect the neighborhood and more. The reason is simple, the agent’s responsibility was to the seller, and getting the highest price possible.

Buyer’s representation was born of the need for buyers to have protection. Buyers required that their agents be open regarding pricing, home condition, and other factors that affect home values. Hence, buyer’s agents were born. A new breed of real estate agents, buyer’s agents represented the buyer, and worked for them to find the best financing terms, the best legal counsel, the best home, and to get the lowest price possible.

In the days of Seller agency only, it was routine that an agent could receive double commission by bringing a buyer to the contract and handling both sides. In all honesty, this was fine. Because, the buyer was never represented, and thus, no ‘additional’ disservice was being  performed. But, when buyer’s agency was born, it didn’t take long for agents to say that they could represent both parties. Herein lies the problem.

If you are a listing agent and you are selling a home with Masonite siding, you are required to list this in the MLS. However, you don’t add a disclaimer that says you have Masonite siding and all of the issues that are inherent in poor installation of that product.  Why? Because it is not in the best interest of the seller. Plain and simple, Masonite homes are harder to sell than Hardi-Plank because they can have problems. If I am a buyer’s agent, I should always point out that a home has Masonite and explain what this means to maintenance and resale values and resale time. I explain that many companies will not allow their employees to purchase homes sided with Masonite if they are part of a company funded transfer. Why would I point out things that might make my buyer pause before buying? Because it is in the best interest of the Buyer. I represent them, and only them.

In Dual Agency, the real estate salesperson tells both buyer and seller that they represent them. But they can’t. Instead, they land up representing neither. A Dual Agent cannot help both seller and buyer in determining a fair price for a home. They cannot assist in working through home inspection items. They cannot represent either client when one becomes unreasonable. If my client is unreasonable, I still go to the mat for their issue, even if I disagree… because I am hired to represent their every issue.

At Nest, we have in our Policy Manual that no agent can ever act as a Dual Agent. If I am representing a Seller and someone calls me to see that house. I will show it, and I will do my best to sell the positive features of that home to the prospective buyer. And if that buyer decides to purchase the property, they will have two options: to work with me as a “non-agent”, or to contact another Realtor and ask that they represent the Buyer. Regardless of which choice that buyer makes, he or she will make it as an informed buyer. Not all buyers require representation, but none will be denied.

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