At the most basic level, the purchase of a home is the exchange of money for the transfer of title. Sounds simple, right? In actuality, though, buying or selling real estate involves many steps and expenses. Title fees are one of those expenses and an integral part of buying a home.
“Title” refers to legal ownership. In real estate, to have title to a property means you have all the rights of property ownership. You can occupy, develop, lease, sell, or transfer the property to another owner through a will or as a gift. The seller of the home must have clear legal title to do so. Real estate title usually is conveyed through a deed, a document recorded in the local public records.
To transfer the title as part of a home sale, the first step is to establish the legal ownership of the property through a thorough review of public records. When the home is to be purchased with a mortgage, the lender requires insurance to protect against future claims questioning ownership or threatening full use of the property.
Title fees will be included as part of the closing costs for the home sales transaction. Title-related closing costs include the following components.
A title company or title agent usually is hired to conduct a title search. This search looks through a variety of public records to find documents that pertain to the property and its owners, as well as to find possible defects to the title. These defects could limit the owner’s ability to fully enjoy the rights of ownership. Records searched include property assessment records, land surveys, court orders, tax filings, wills, and other public records.
A title expert reviews the records gathered during the title search and identifies any encumbrances to a clean title. Examples of possible defects that could exist include outstanding liens against the property, unpaid tax assessments, discrepancies in land survey boundaries, unknown heirs with possible claims to the property, easements granted, clerical errors in recorded documents, and other items that could jeopardize ownership. All relevant findings are itemized in a preliminary title report.
Title insurance protects the policy holder’s financial interest in the property against future claims based on events that happened prior to the closing of the sale. Though the title search attempts to uncover any issues concerning the seller’s claim to ownership, the title insurance provides protection for any defects the title company might have missed. If the property is financed through a mortgage, the lender will require title insurance. The policy premium is paid as a one-time fee as part of the closing costs. The policy remains for the duration of the loan.
An owner’s title insurance policy is optional, though recommended. Like lender’s title insurance, owner’s title insurance protects against future claims related to possible unknown defects to the title. The policy is paid as a one-time premium and is in effect for the duration of the owner’s financial interest in the property. Home buyers can choose to obtain extended coverage, such as having coverage for the future value of the property, since standard title insurance only protects the owner for losses up to the value of the property at the time of the sale.
In some cases, such as a property with a complicated or unclear legal history, an attorney might be retained to review the chain of title. If a lawyer provides a title exam, then expect to see attorney’s fees added to the title fees.
The title company might assess other related fees, such as the costs for filing documents, clearing up defects in the title, and report preparation. In some situations, the title company might need to order a land survey to determine the property’s boundary lines.
Title fees depend on the price of your home, where you are located in the country, the complexity of establishing a clear chain of title, defects that need to be corrected, and the selected title agent or insurance company. Typical title fees range from several hundred to a few thousand dollars.
The title insurance premiums usually are the largest of the title fees. Lender’s title insurance averages 0.50 percent to 1 percent of the loan amount. Owner’s title insurance costs significantly more than the lender’s policy, since the lender’s title insurance coverage declines over time as the mortgage is repaid.
At least 41 states regulate title insurance costs under state law. In those states, the premium is calculated according to a legislated formula usually based on the price of the property sale.
Region and local markets generally dictate who will pay for title fees. Some states tend to expect the buyer to cover the expenses during closing, though variation can exist even within the state, with some counties customarily requiring the seller pay for title fees. In some places, the seller might pay for the owner’s title insurance policy, while the buyer pays for the lender’s title insurance premium.
In states like California and New Mexico where the premium for title insurance is not regulated, you can shop around among title agents for a lower premium. In regulated states, the title insurance premium costs will not vary by company. However, the other title fees might vary. Before agreeing to use your lender’s preferred title services provider, obtain quotes from different vendors.
You can request different discounts. For example, if you are buying a home from a seller who has an owner’s title insurance policy in effect at the time of sale, you might be able to obtain a discounted reissue rate. Since about 65 percent of all title policies qualify for a reissue rate, you should ask for one. Another type of discount is a simultaneous issue discount. This saves you money if you purchase both the lender’s title insurance policy and owner’s policy from the same company.
As a home buyer, you can negotiate for the seller to cover certain costs as part of the purchase agreement. If you are buying a home in an area where you would typically cover the title fees, you might consider asking the seller to cover the costs instead as a condition of the sale.
Your real estate agent can advise you about title issues and help you find savings in the title fees where possible and when advisable. LemonBrew not only can match you with an experienced local real estate agent but can help you navigate the title search and review process. LemonBrew’s expertise is everything real estate, and its experts are ready to advise you through the homeownership process.