Consumers Benefit from Alternatives to Realtor and Title Insurance Business Practices

The tradition of paying real-estate agents up to 6% of the selling price of a home will end this year as the result of the National Association of Realtors resolving litigation alleging a strategy of keeping commissions artificially high. Buyer and Seller commissions can be expected to be negotiable in the future, reducing consumer costs.

Industry experts view the NAR model as unchanged in 100 years. My sense is that there will initially be a number of "split methods', involving negotiation and disclosure between seller, seller agent, buyer and buyer agent. Buyers will likely have to legally commit to agent commissions, and if sellers decline to participate, the buyer may be entirely responsible for their agent's commission.

Disruptors will enter the market, with hourly or low flat fees, and attempt to provide the one-stop-shop to satisfy all stakeholders. New entrants are likely to include lenders and loan brokers seeking to expand their relationship and revenue with Realtors.

During the scramble to capture and/or protect market share, traditional commission of 6% may fall to 3%-4%. The real question is what impact reduced closing costs will have on housing prices? The basic premise is that lower acquisition costs increase the number of qualified borrowers...but with limited inventory propping up pricing, in the short term, it appears unlikely lower costs will rapidly translate to lower selling prices. At any rate, consumers should have negotiable-choice, not a 100 year-old Realtor practice of status quo.

In a particularly coincidental timeframe, title insurance costs are also under attack...from lenders, borrowers, investors, regulators and industry disruptors who also see the $30 Billion annual title insurance business model as essentially unchanged in 100 years. Many experts see title insurance as costly and unnecessary, evidenced by 2.7% in claims paid. This calculation alone suggests there is no correlation between title insurance price and risk.

The Biden administration on Thursday announced a program to save homeowners thousands of dollars in mortgage refinance closing costs.? The initiative aims to reduce one of the biggest costs associated with closing a mortgage: title insurance. Under a pilot program, FHFA, Fannie Mae, Freddie Mac, Treasury and the CFPB seek to waive a requirement for title insurance on low-risk mortgage refinancing transactions, while at the same time examining the anti-competitive and monopolistic practices of the title insurance industry.?

This waiver is not Fannie Mae and Freddie Mac seeking to act as "de-facto" title insurance companies. Rather, it is a technology-driven concept to reduce consumer costs in a very low-risk asset category...and serve as a healthy alternative to the 100 year old title insurance status quo.

According to the White House, FHFA, Fannie Mae, Freddie Mac, Treasury and CFPB are looking into costly, unnecessary, anti-competitive and monopolistic practices of the title insurance industry that deny consumer choice of alternative loan closing opportunities. Naturally, the lack of consumer choice in selecting an alternative loan closing preference, serves as a barrier-to-sale, particularly for minority and first-time home buyers, and consumers seeking to reduce closing costs.

For information concerning iTitleTransfer’s national, low-cost Fully Insured Loan Closing Platform for life-of-loan and loan amount; authorized by Fannie Mae and Freddie Mac as an alternative to title insurance for Purchase transactions; please contact Founder and Managing Director, Ted Sprink at [email protected]