Choosing the Right Title Company
Title Clearing is An Often-Overlooked Area for Risk Mitigation
By Dax Junker
Risk and reward have always been intrinsically bound together across investment types – including real estate. The more risk an investor is willing to take on an investment, in general, the higher the potential rate of return and reward.
Over the last 15 years, with interest rates stable or declining, the real estate market has, overall, been appealing on many different fronts. But the last 12 months have seen a sharp reverse of that trend and a sizable jump in rates. Add in exponential increases in home values, rising inflation, supply chain disruption and labor shortages, and a new work environment brought about by the pandemic, and suddenly real estate investing looks different.
But a smart investor knows that volatile and dynamic markets often bring the best opportunity if you know where to look. A smart real estate investor also knows it is important to find partners to work with that can help reduce their risk in a myriad of small ways that all add up to larger returns. Title clearing is an often-overlooked area for risk mitigation.
Finding Opportunity in SFR
The world changed dramatically when the COVID-19 pandemic hit because people were forced to spend more time indoors, often living and working in the same space. That dynamic caused many people to begin looking for more space. For many people, more space does not equate to buying when you add up rising interest rates, a 20% down payment on a $300,000 median house price, and the cost of maintenance and repairs associated with long-term home ownership.
In that context, Single Family Rentals begin to make a lot of sense for more families. SFR tenants obtain the feeling of being in a home, they tend to stay in one place longer and take better care of their residence because they treat it like a home, not a temporary stop.
Many real estate investors saw that trend and are finding opportunity in single family rentals. With single family home prices rising, families are having to rent instead of buy and investors are buying into the SFR market in a big way. In fact, according to Forbes, almost 20% of single-family homes sold in 3Q21 were sold to investors. The John Burns Real Estate Consulting firm has even reported recently that investors accounted for 33% of all home sales in January, 2022.
When rates began rising in 3Q last year, it was broadly recognized that the refinance boom was over and title companies needed to shift their focus. With the investor market taking off, that appeared to be a good direction. While working with investors has some minor challenges, there are also some big benefits – for both the investor and the title company.
For a title company, one of the biggest benefits of working with investors is that most of them with any experience at all know the business and the process really well. They also understand that title search and clearing, done right, inherently reduces risk, can eliminate a lot of problems down the road, and makes closing a lot easier for everyone involved.
What Investors Should Look for in a Title Company
For investors, it is important that your title company have team members that are regionally or state focused. Title laws change from state to state and a national company with local knowledge can actually help an investor grow their business rather than force them to work with a different company for different geographic locations. That can add confusion and cause errors, costing an investor time and money.
An investor should also make sure that their title company works with national underwriters for two major reasons. First, a title company should offer their clients the best option for them, and that level of variety means you can cover many different types of deals in many different environments, again — to the benefit of your investors. Second, that geographic variety helps find underwriters that may also be local experts in areas with specific issues they are more familiar with, helping to reduce risk on particular types, or locations, of investment.
Last, but not least, any strong title company should have the technological tools that integrate across vendor platforms to deliver fast, accurate information as soon as possible. There are smaller title companies that have not made the investment in technology that they need to and not having the right tools can actually add risk to the process rather than reduce it.
In an era where people do not seem to disconnect from their phones and email, it might seem odd to mention communication with investors as a challenge — but it truly can be and getting communication right is key for title clearing. Some investors might be working 20, 30 — up to 75 or 80 deals — at a time and they need answers right away. Ensuring that an investor gets the information they need, when they need it, is so mission critical that we are building out a dedicated call center so that we can be that much more responsive to investors’ needs. We do not ever want to hear that one of our clients lost a deal because we did not get back to them in time.
Finally, some title firms work on a volume basis – so the bigger the volume, the higher you climb on the processing list and a smaller investor’s transactions get bumped down the list. That type of volume focus actually punishes investors that might do a lot of deals over a period of time, not just all at once. It also eliminates the possibility of relationship building where working with the same people allows your firm to get an understanding of the personalities involved, develop a preferred workflow, and deliver quality results.
So before choosing a title company to work with, do some research and ask them how much experience they have, if they can execute across all states and online, and which underwriters they use. Those three simple questions will save you time, money, headaches and ultimately, help reduce your risk and potentially increase your reward.
