In Ohio, and many other states, title insurance rates are filed with the Department of Insurance... and that is what title insurance costs. Most of the underwriters file the same rates, so there is no difference between what an agent of one underwriter charges versus an agent of another. Typically, the agent receives a 70 to 80 percent share of the premium for their services... and, they typically charge additional fees for the title examination and the closing.
But, what happens if one underwriter sells direct, cutting out the large agent split of the premium, and files lower rates? That seems to be the strategy of Entitle Direct Group. They have filed rates 35% below the other underwriters and claim they can save consumers hundreds or even thousands of dollars.
Title agents are accustomed to competing with direct operations, even the direct operations of their own underwriters. But, at least the prices have always been the same regardless of whether the consumer closed with an agent or the direct operations of an underwriter. Here, Entitle doesn't utilize a costly network of agents - they sell direct online - and its filed rates are far below what any agent is required to charge. Thus, there is now a cheaper alternative to a traditional title agent.
That may be tough to compete with, but there is still an advantage held by the title agents. They have brick and mortar offices in the local neighborhoods - they do business face-to-face. The traditional referral sources, such as the Realtors and lenders, are familiar with the local agents and have developed good working relationships with many of them. But, still, if the idea of marketing direct to consumers catches on, this could be disastrous for the small agents.
There is a lot to be said for the services that a local agent provides... but, for a second, let's put those aside and ask a simple question. Are title agents even necessary anymore?
Ironically, title agents may have started the trend toward their obsolescence. As many title agents grew beyond their local communities, they began utilizing the services of independent abstractors and contract closers. The face-to-face aspect of title services has been slowly losing its significance. Refinance searches have become very inexpensive - sometimes as low as $35. And, some notary signing agents have been providing services for as little as $75. By creating such a strong market for these services, is it really any surprise a new company would evolve to take advantage of it?
The agents provided the "proof of concept" for Entitle's business strategy. Once it was shown that a company could service remote customers with independent abstractors and closing agents, the Internet provided a perfect medium for drawing them in. Without the expense of maintaining agents to sell its product, it was able to file lower rates that nobody else can even come close to competing with.
The direct sales concept has met with some skepticism in Connecticut. It has been suggested that the attorneys that handle the search and closing functions will simply charge more for those services to make up for the revenue they lose by not selling the policy. Thus, any savings from buying direct may be negated.
But Connecticut lawyers, who stand to lose the commissions they earn on title insurance, are warning that the savings in premiums could evaporate because they'll need to raise their fees to replace lost income.
Lawyers have long chosen title policies for their Connecticut clients and usually receive 60 percent of the premium in commissions, the maximum the state allows. In other states, where commissions are as high as 70 to 90 percent, real estate agents or mortgage brokers often place the insurance.
Entitle doesn't seem worried.
If Entitle Direct customers decide not to hire an attorney, the company said it will handle the closing for an additional $425 fee in Connecticut and arrange a title search for $295.
It remains unknown how many consumers will be comfortable working with an online company to handle such an important transaction. But, more and more people are doing more purchasing online, so it is likely that the trend will continue in that direction. The more people become accustomed to transacting business online, the less the face-to-face aspect of real estate closings will influence decisions - especially when significant savings can be realized.
I much preferred this business when it was largely localized to the county where the property was situated. Local title agents knew their customers and the county officials. But, we are past that now. Whether buying title insurance online, or from a title agent half a state away, the localization has been lost.
The business dynamic is changing and surely some will welcome it and some will dread it. But Entitle's novel approach may be tough for local agents to compete with.
Robert A. Franco
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