When Tom Strange, a retired computer engineer in Henderson, Nevada, refinanced his mortgage last year, he rejected the $1,870 title insurance offered by his mortgage broker. Searching online, he cut the cost by half.
“It was worth it,” said Strange, 63, who said he saved almost $1,000. “I don’t know how many people are aware of it. I never would have guessed.”
Homebuyers generally are required to purchase title insurance in the amount of the mortgage to protect lenders against claims on the property, such as prior liens. It’s a one-time cost usually paid at closing. Most buyers use the insurer their lender or lawyer recommends, though a 1974 federal law gives purchasers the right to choose.
More homeowners like Strange may opt to shop for title insurance because they now receive a summary of their closing costs earlier in the buying process. It’s been required by law since January 2010 that lenders must provide accurate closing costs within three business days of receiving a mortgage application.
“The new law absolutely has prompted an increase in consumer shopping across the board,” said Timothy Dwyer of Entitle Direct Group Inc., a title insurer based in Stamford, Connecticut. “A consumer who has an estimate can compare and contrast the charges.”
The savings can be substantial. For a $1.5 million home purchase in New York, with a 20 percent down payment, Entitle Direct, which sells directly to consumers without using agents, charges $4,973 for owner and lender policies compared with $7,650 for the same policies sold by many traditional insurers, according to their rate manual.
Buyers in other areas may not see similar savings because each state regulates the industry differently. Texas and New Mexico set rates for all insurers, while states including California, Maryland and Nevada approve individual rates. Some, such as Oklahoma and Georgia, don’t regulate rates, and Iowa forbids the sale of private insurance, selling the coverage itself. New Jersey, New York, Ohio and Delaware have rating bureaus, which are groups of insurers that in most instances agree to charge the same price.
Title insurers underwrite policies that protect the property from unforeseen claims. They, or the agents who sell the policies, conduct a land records search to make sure the property history is clean. The insurance pays for expenses related to defending against claims on the property and covers any valid claims. Homeowners who are refinancing are usually required to buy a policy, often for a lower rate.
Web search tools help buyers compare prices. The California Insurance Department and the California Land Title Association created TitleWizard, a free online calculator. A search for title insurance on a $500,000 home in Long Beach with a $450,000 loan shows rates that range from $667 to $397, a possible 40 percent savings.
Denver-based Tiservices LLC’s mytitleins.com, which started in 2007, gives Colorado buyers a free online calculator and reviews the quality of insurance coverage. Founder and owner Garry Wolff said the service is expanding to at least 13 other states.
“We want to provide more information to the consumer so they can make an informed decision,” Wolff said. “We found that there are differences in costs and differences in protection. It’s not a transparent industry.”
Most title insurers don’t compete on price and rely on service to build relationships with lenders and real estate agents, said Nat Otis, an analyst with Keefe, Bruyette & Woods, a New York-based investment bank.
“There’s an element to the market to be enticed a little by competitive pricing, but most people don’t know who their title insurer is,” he said. “It’s more important that they (the agents) are doing business with a known entity.”
Fidelity National Financial Inc., based in Jacksonville, Florida, First American Financial Corp., based in Santa Ana, California, Stewart Information Services Corp., based in Houston and Old Republic International Corp., based in Chicago, had 88 percent of the market as of December 2010, according to the American Land Title Association, a Washington-based industry group.
At least one state is considering legislation to increase competition and make title insurance more affordable.
New York, which has the highest average title insurance costs in the U.S., according to Bankrate.com, a financial services company based in North Palm Beach, Florida, is weighing state-backed title insurance, meaning the state would sell policies.
Consumers should comparison shop for both price and service, said Kurt Pfotenhauer, chief executive officer of ALTA. His organization advises buyers to ask about any associated fees that may be added to insurance premiums.
“Price alone should not be the determining factor when selecting a title insurance company,” Pfotenhauer said in an e-mail. “It’s important for consumers to ask questions about title insurance, the protection it provides and associated costs.”
Homeowners who find discounted rates should confirm their lenders will accept the cheaper policy, said Strange, the Nevada retiree. When he told his broker he’d found a cheaper policy, he said the broker told him, ``Nice work.”