• GAZLO
• CLASS
• JOBS
• AUTO
• HOMES
• BUSINESSES

Title costs tied to property’s value

JANESVILLE — In any real estate transaction, certain costs are inevitable.

The real estate agent will get a 6 or 7 percent commission. An attorney will charge an hourly fee for his or her work and the mortgage lender will pass on its costs associated with the loan.

The cost of title insurance is based on the price of the property being bought or sold or the amount of the mortgage being refinanced. It starts with a base fee and then goes up based on the value, with specific price points along the way.

The Web site www.bankrate.com said that in 2006 the average cost of title work in Wisconsin was about a half percent of the loan value.

Profitability for the title insurance industry is cyclical. The booming housing market of the early 2000s, coupled with increased mortgage refinancing, benefited title insurers. In fact, the industry posted $16.6 billion in revenue in 2006, up from $5.1 billion 10 years earlier.

But the housing pendulum has swung, and revenues are shrinking and costs rising as home prices have decreased and increases in foreclosures have lead to more title disputes. Several local title insurance companies have laid off employees or cut hours and benefits.

The profits of the good years are expected to cover the lean years, when fixed costs driven by evolving technology continue with little regard to revenues.

Competition in the local marketplace also has increased. Many companies with no real ties to the community have entered the market in search of real estate agents and mortgage lenders to send title insurance business their way.

The result has been a drop in prices and quality, long-time Janesville title agents said.

“That’s been most difficult for me, because I’m big on quality of work and service,” said Miles Meidinger of The Title Team in Janesville. “Quality can’t help but suffer when prices drop.”

The influx is due to what state Insurance Commissioner Sean Dilweg said is a proliferation of “affiliated buyer arrangements,” companies in which real estate or other professionals are owners of title agencies.

Some ABAs are considered legitimate businesses operating on a daily basis in a given community, while others may be outside companies jumping into the local market for a quick transaction.

“The proliferation of ABAs should have never happened in Rock County,” said Deborah Dongarra-Adams of Land Title & Closing Services in Janesville. “It’s just too small here for all these companies.”

Meidinger said that as recently as 10 years ago, there were five or six title insurance agents writing the policies in the Janesville and Beloit areas. Now there are more than 20.

“These controlled businesses don’t have to be competitive on the local level, because when a real estate agent or a lender has an interest in the title insurance business, they make their money elsewhere,” said Jim Mawhinney of Rock Title in Janesville.

Dongarra-Adams’ business is an ABA because it’s partly owned by Century 21. But, she said, Land Title has a long track record in Rock County.

“A lot of these ABAs swoop in and cut costs, but they don’t know the ins and outs of this area like we do,” she said, adding that the customers of Century 21 real estate agents don’t get favorable pricing.

One such company in particular has offices in Dane and Walworth counties, she said.

“They come in and undercut on prices,” she said. “They give nothing back to our community, nor do they employ anyone locally.

“We’re local. We live here. We work here. We pay people here. That should count for something.”

Meidinger said title insurance is a labor-intensive business with high fixed costs. Most major insurers maintain expensive title plants—electronic databases that cover recently digitized land records in the county.

The newer players, he said, often can’t compete on quality and service, so they compete in the short term on price.

“We can’t possibly have the quality we want and pay people what they should be paid with dropping prices,” Meidinger said. “There are times I wish there was a different way to handle costs.”

Dongarra-Adams said the industry might be better served by charging hourly rates as attorneys do. It would make less money when the real estate market is booming, but it would fare better in down cycles.

Under the current system, title work costs the buyer the same amount regardless of the time involved or problems resolved.

But it also includes a liability factor, said Jim Mawhinney, president of Rock Title in Janesville.

“The larger the property value, the greater the risks,” he said. “You have the same overhead whether it’s a $50,000 policy or a $300,000 policy, but the risks are much different.”

That may be true, Dongarra-Adams said, but it’s more likely that the $50,000 policy will require more of her staff’s time than the $300,000 policy.

“I wish it would be hourly, because we’d make more money,” she said.