Affiliated business arrangements and joint ventures are all too common in our industry.
Specifically, it seems like every real estate broker — from small independent ma-and-pa shops, to nationally recognized franchisees, like Coldwell Banker or Century 21 — are partnering with a title agency in an effort to drive more money to the bottom line, or profit.
If you’re unfamiliar with this business idea, it’s where two companies partner together and exchange benefits. The most common case is where a title company becomes the “recommended title company” to every agent in a brokerage. In return, the broker is given a share of the profit distribution — through a form of ownership.
The title company is often sold to agents and consumers as a one-stop shop solution. They are sold as being beneficial.
It seems like everyone is doing them, so it must be a good idea, right?
… In this article I am going to share why every real estate agent needs to stop blindly using the joint-venture-title company their broker is associated with, and why an agent needs to do their own research to find the best title company for their clients. Ideally, it’s one without any joint venture or affiliated business arrangements. These title companies are often called independent title agencies.
Disclosure: I have to say this so we’re clear. This article in no way represents the total opinions of Liberty Title. This post is written by me, Alex Craig, a Lansing real estate agent. More importantly, no money exchanged hands for me to write this. I did this because I see it as my duty; the duty I agreed to when I became a Realtor®, which brings me to my first reason.
You Agreed to A Code Of Ethics
I remember watching the movie, The Lorax, when it first came out. One of the biggest lessons I took from the movie was just because you can, doesn’t mean you should.
Let me repeat that important point: just because you can, doesn’t mean you should.
While it’s 100 percent legal for real estate brokers to create affiliated business arrangements with title companies, as long as they follow certain guidelines laid out by RESPA laws, it doesn’t mean that they should.
When we agreed to become Realtors®, we agreed to a certain code of ethics. In the Preamble of the Realtor’s Code of Ethics, it states:
“Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.”
I had to write this article because I see it as my “grave social responsibility”. I have a need to share with my fellow Realtors® a higher definition of integrity and honor. I want every agent to accept a new ethical standard in our industry. A better standard.
Look, we all know the market has a bad image of real estate agents. They think we are sharks. Sales people. Money hungry. In it for the paycheck. The list goes on about how terrible we are.
If only people really knew how difficult it was to be an agent, and knew the fact that most real estate agents don’t make a lot of money.
Here we have the opportunity to change the public’s perception. It’s by upholding our Code of Ethics to a higher standard.
The National Association of Realtors wrote this in their 2019 Code of Ethics:
The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal.
Being a Realtor® means you’re being fair, you have high integrity, and you’re competent. All of this is built from a lofty ideal of moral conduct.
Unfortunately, I don’t think the term Realtor® has come to mean competency, fairness, and high integrity. At least not in the eyes of the public.
They still think we’re evil. In part, because we have been induced by profit.
Want to know what created more joint ventures? The economy tanked. In an effort to fatten the bottom line and be around next season, many brokers banded together with title agencies.
Brokers were induced by the thought of profits. An action that is stated to be against NAR’s Code of Ethics.
When we became a Realtor®, we agreed to live out these Code of Ethics. So, how can a Realtor®, for example, who has pledged to represent the best interests of his homebuyer, at the same time refer that homebuyer to a title company because of a pre-existing agreement stating the title company will share a portion of its profit with the referring agent’s company?
These kinds of relationships are damaging to a Realtor’s® credibility and our image. It makes us look like we are profit-hungry.
I’m always cautious to argue on moral grounds, so let me give you some other reasons you should refer your clients to an independent title agency.
Anything But Independent Is Anti-Consumer
Most real estate brokers will sell joint ventures as very “consumer-friendly”. They do it under the guise of convenience and being a “one-stop shop.”
Anything but an independent title agency is often anti-consumer. In 1974, Congress passed the original Real Estate Settlement Procedures Act, or RESPA, in an effort to improve disclosures of settlement costs and to eliminate abusive practices in the real estate settlement process.
By referring an independent title company that is not bound by an affiliated business arrangement, you eliminate potential conflicts of interest for your buyer.
It is common for real estate agents to receive higher commission splits with their real estate broker by referring your real estate transaction to their “in-house” title company.
This is a conflict of interest for you and your buyer. Here’s my question to you: are you recommending a title company because you want your commission to be higher or because you genuinely believe this is the best title company for your client?
By having independent groups working on your transaction, you establish a system of checks and balances, working in favor of your client.
With affiliated business arrangements, who supervises the title company? The referral source does (ie the real estate broker). That means a client gets what the broker wants, whether that’s good for your client or not.
To me, this is all anti-consumer. There are too many competing interests. And we lower the checks and balances of a real estate transaction — exponentially increasing the likelihood something goes wrong.
Superior Customer Service and Products
When you’re an independent business without a joint venture relationship, there is a stronger link between your revenue and profit, and the quality of your services and products.
Think about this from a capitalistic-market perspective. I won’t dive deep into the economies of markets, but I don’t want to gloss over the theory behind this.
At the end of the day, there is only one thing that keeps a company alive. It’s cash. That cash can only come from two sources. You need to have a profit margin or someone with deep pockets, like a bank or a venture capitalist, who is willing to provide you with cash.
You can only go so long before a bank will stop lending. That means a business needs to find out how to turn a profit.
They do this by creating superior products, offering better service, and operating more efficiently.
If you have to get your clients through marketing — rather than having a relationship with a broker — your product or service needs to be something a consumer wants.
An independent title company, like Liberty Title, has to HAVE better service and products if they want any chance at competing in the title market.
The fact that they went from a single office to twelve is an indicator that they have superior service and products. Otherwise, the company would have gone bankrupt a long time ago.
So, if a title company is independent, there is a good chance that they have superior service and products. That’s what I have seen in my area, and specifically with Liberty Title.
When I compare Liberty Title to other companies in my real estate market (Lansing), there are a few things that make them unique.
First is their Umbrella by Liberty Title program. The program offers enhanced security protections and additional benefits before, during, and after closing that you can’t get elsewhere. Here is how they help:
- Pre-Closing Protection. All parties have access to our secure platform for wiring communications, SafeWire. SafeWire is a trusted provider that uses the block chain for wire protection. All wiring communication will be performed on this platform and they provide up to a $1,000,000 guarantee that your transaction will be handled safely.
- Protection During Closing. All parties (the Buyer, Seller and their real estate agents) receive coverage under our Lloyd’s of London cybersecurity insurance policy that provides additional protection for your funds during the closing process and allows for reimbursement of any funds that may be lost due to wire fraud or cybercrime.
- All parties have protection against “The Gap,” which is the time between closing and recording the documents where fraudulent deeds, bankruptcies and other matters connected to the real estate are uncovered. By closing the entire transaction with Liberty Title, we assume all responsibility for any matters that may occur in The Gap, such as bankruptcy, fraud or other liens.
- Post-Closing Protection. The Buyer receives a complementary upgrade to their title policy that will provide coverage against future deed fraud, present code or permit violations, and a host of activities that can happen after the transfer of the property. If a post- closing fraudulent deed is placed on the property, attorneys will work with the homeowner to clear up the matter. This upgraded Owner’s Policy will be provided at no cost of either the Buyer or Seller. The Sellers and Buyers receive protection from our Proplogix Release Tracking program, which ensures all liens are quickly and accurately released from the property. With Release Tracking, Sellers FICO scores and credit reports are less likely to be negatively affected by old mortgages Buyers will have a clean title for refinancing or a future sale
The second reason Liberty Title is unique is their relentless focus on improving. Let me tell you about my first experience with Liberty Title.
When I first got started, like many agents, I used the title company my broker was part of. After the deal was closed, it was done. Nothing happened.
Then, I met Heidi, one of Liberty Title’s Account Executives, and we talked about all things title. After our conversation, I wanted to test out Liberty Title.
Once the transaction was complete, Heidi reached out to see how my experience was. She wanted to collect feedback so that she could help improve the service of the company.
I have been to every other title company in Lansing at some point and the only company to ever gather feedback was Liberty Title.
It’s clear Liberty Title understands the laws of economics. They are focused on building a superior service and product. They understand they would be pushed out of the market if they didn’t.
Here’s the deal though. An independent title agency doesn’t guarantee better service or products, but I see that being the case more times than not. That’s because of the law of economics.
For that reason, It’s worth investigating an independent title agency over your broker’s recommended title company. Many joint venture title companies have no incentive for creating better service and products. They don’t need to when your business is taken for granted. In fact, they expect your business.
Every agent should refer their clients to an independent title agency because of the Code of Ethics they agreed to, anything but independent is anti-consumer, and independent agencies often have better service and products.
But don’t blindly assume an independent title company is the answer. That’s the point of this whole article. Don’t blindly assume without doing research. You need to do your own research and homework.
Sit down with people from the title companies in your area. Investigate until you find the one that’s best for your clients.
Sometimes this might be a title company that has a joint venture. Not all title companies that have joint ventures are bad. If you find one that invests their profits back into the title company to create better service and products rather than distributing it to the broker so they can offer better commission splits to their agents, then you might have found a good one. From my research, this is rare though.
If you have a Liberty Title in your area, you should definitely put them at the top of the list to research. They are the best title company for my clients. I hope they are for yours, too.