Don't rely on agent's choice for loan, title services
In slow market, buyer's best interest may be compromised
By Tom Kelly, Tuesday, August 26, 2008.Real estate agents are clearly the most influential persons in every real estate transaction and their power is not reserved for buyers and sellers -- it extends to all professionals involved.
That position of influence becomes magnified in a slower housing market. Everybody is desperate for deals. And, while Realtors typically offer beneficial referrals, consumers should always remember that they have a choice when picking the various players in the home-buying process -- appraisal, credit report, title report, escrow company, mortgage company, etc. These choices often start with the selection of a title company in the standard purchase and sale agreement. This may seem like a "who cares?" decision, but the competition is fierce.
How much do title companies want to be the company of choice in your purchase and sale agreement, commonly known as an earnest money agreement? A few years ago a title insurance company offered to furnish a real estate broker's office if all of the agents in that office wrote in the title insurance company's name in the appropriate spot in the earnest-money agreement. Another company offered a broker the use of billboards in public places for carrying the company's name atop preprinted earnest-money agreements. A third company offered all-expenses-paid fishing trips.
As a result, many states have passed laws in an attempt to curtail gifts to people who have considerable control over the selection of persons involved in a real estate transaction. The total value of allowable annual gifts to "producers" typically is about $25.
The intent of the regulation is to safeguard a choice for consumers. Consumers have a right to choose escrow and title companies and to know why lenders prefer certain appraisers and credit companies. And all reps -- agents, loan, escrow, title -- should choose services in the best interest of their customers and not themselves.
"I don't think the abuses are as rampant as they used to be," said Joe DiPaola, real estate attorney, broker and former in-house litigation counsel for Coldwell Banker. "But it's impossible to monitor everything that's going on. Everyone accuses the other guy, but there really are no white hats out there."
Obviously, competent representatives will ship their business to the company that can get the job done. It's a tough, competitive and highly lucrative business that often continues to snowball. Real estate brokers say third-party providers constantly are offering goodies, while the providers contend that they will quickly be dropped if they don't continually offer incentives.
The heat clearly is on around the country. For example, the Washington state insurance commissioner's office investigated 12 title companies. Its report found "all the major players in the greater Seattle title insurance market were routinely breaking state laws that limit and restrict the use of incentives and giveaways to steer business."
One company spent $11,000 on tickets and expenses at two Seattle Sonics basketball games, investigators said. One agent spent $6,000 for cocktails during the 18-month period under investigation, and another company picked up a single restaurant tab for more than $3,300.
A more glaring example of how bold third-party providers can be in capturing the business of productive real estate agents occurred in California. The California Department of Insurance uncovered numerous instances of suspected illegal rebates by Southland Title Corp. and its subsidiaries, Southland Title of Orange County and Southland Title of San Diego.
The investigation found fraudulent and/or fabricated invoices and expense reports in excess of $47,000; providing food, beverages and entertainment in excess of $174,000; providing gifts and gift certificates in excess of $62,000; and providing business support services in excess of $218,000, all to benefit real estate agents and brokers. And -- get this -- the firm was fined $1.5 million for similar violations just two years earlier.
A few years ago, when residential real estate was the only shining light in our economy, I received a call from a national title insurance company asking about advertising rates for my nationally syndicated radio show.
Before I could refer the call to an account executive, the title representative said, "We don't have much money left in the budget because our main target is Realtors and not consumers."
Consumers still have a choice, even though third-party providers continue to jockey for the agents' attention.
To get even more valuable advice from Tom, visit his Second Home Center.
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Submitted by Fred Glick on August 27, 2008 - 3:30am.
Mortgage, yes. Title, no.
In most areas of the country, the rate for title insurance is the same and the fees may only varie slightly.
But, it is about service! I have seen title companies that have been picked by the borrowers over the years that are a nightmare!
Lenders/Brokers need things timely and correct. There are too many title companies that don't seem to care and ruin a transaction (both refis and purchases).
Yes, shop, but the cheapest price on title is not always the best!
Submitted by M C on August 27, 2008 - 4:28am.
Oddly enough, how much are the companies paying Inman to have their ads placed on the website? I am sure it does not go to lowest bidder and Inman does not have any quality control of the service/product these companies provide.
Enough of the hypocritical attacks on the real estate industry. Just because the media gets a free pass via freedom of the press, does not validate their practices of looking out for anyone but themselves via their advertising. The same as the Realtor that gives presence to title company in their space. Let’s make it mandatory that Inman disclose who is paying what to them in dollar amount and terms of their agreements; yes a HUD-1 of advertising. Let’s start hearing all the reasons it would not work. Time to put up or shut up your hypocritical attacks.
Bottom line, you can have government regulations stifling the efficiencies of the real estate industry that will never change the ethics of people. The best way to reduce consumers obtaining products/services from bad players is to eliminate all advertising; requiring businesses to survive based upon their good names that trusted advisors to people could refer.
In the mortgage industry, every time an interest rate is advertised a fraud is perpetrated. An interest rate is a product that is determined upon the facts of the consumer--credit, capacity and collateral. Thus, it is a liar’s opportunity to serve the greed of the consumer by telling them what they want to hear, not what they need to hear.
Inman is a coconspirator in the fraud by creating the advertising venue.
Submitted by Catherine Read on August 27, 2008 - 4:36am.
I completely agree with Fred. These are broad generalizations that could be applied to relationships between many companies in many industries in corporate America, not just real estate. Selecting a title company that is thorough, diligent, reliable and competent is key to a smooth transaction. On what basis would a consumer make that selection if not through the recommendation of their agent? If consumers are left to make an "independent choice" don't you think it comes down to picking the cheapest company? On what other basis would they make a decision when on average most consumers only need this service every 5 to 7 years and don't really know what title companies do? Or loan officers, home inspectors or appraisers?
I think you are selling real estate agents short. It's not all about incentives and "buying" referrals. Every professional an agent refers to their client directly affects how their own competency is viewed. No amount of incentives make up for delivering a lousy experience to an agent's client.
Some brokerages handle their affiliated business relationships responsibly. Long & Foster has for years been extremely careful about disclosing affiliated relationships to clients right up front. And Long & Foster agents, independent to the extreme, only use affiliates if they are good - really good. The client comes first for the vast majority of agents. I understand your examples here, but I think the value of having an agent is deferring to their knowledge and expertise. Encouraging consumers to make choices independently when they have limited knowledge of the services offered and the companies offering it is not necessarily in their best interest either.
Catherine S. Read
Creative Read, Inc.
Submitted by Lonny Coffey on August 27, 2008 - 5:57am.
Perhaps if consumers would have listened to their professional agents less of them would have fallen prey to the Predators who are counting on consumers not to listen to good advice. There are abuses in all businesses and the fact that Section 8 of RESPA is abused and minipulated by many in the industry as you described, most agents I know do work in the best interest of their customers. Be careful Tom I may just not pay my money next year to pay for this type of "Journalism".
Submitted by Karen Morgan on August 27, 2008 - 12:12pm.
Another issue consumers should beware is the growing practice of banks with REOs to refuse to sell to purchasers unless the buyer gives up his or her right to choose a title company and uses the bank's designated title company. One such "preferred" title company refused to provide to my agent and/or our buyer a list of its fees or a description of its title insurance coverage prior to the day of settlement. The bank's response, "Do you want the house or not?"--even after being reminded of the buyer's statutory right to choose a company of his preference. The consumer capitulated. In the event, the title company delayed settlement because it did not request the title abstract in a timely fashion!
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on August 27, 2008 - 4:21pm.
Certainly a fine line. While government agencies may have to bid out supplies and purchase requisitions, it is also known that over time, some become "preferred" vendors.
This sort of thing happens in all businesses, accross every industry imaginable.
The real tricky fine-line is when abuse takes place and "kick-backs" or "sweeteners" so-to-speak, become the way business is conducted.
Abuses should be stopped (though this is more of a wish than a reality), and are most definitely not limited to real estate related businesses.
This is a well intended article aimed at making sure that Joe and Jane Public do some due dilligence when dealing with unknowns.
However, if my brain surgeon prefers a certain nurse or anesthesiologist alongside him/her during brain surgery, do you think I'm going to question his choice?
I may want to know that the doctor is who he/she says he/she is, that they have the credentials to perform the surgery, that the hospital where the surgery is to be performed is not someone's garage and perhaps even that they're up to date on their malpractice insurance payments.
However, to then investigate and question his/her choice of team members, is not only too much for most folk to do (even professionals end up with someone after some trial and error in finding them), it is also well... impractical.
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.