The split settlement closing…something that I see on a more frequent basis since moving to the East Coast from Phoenix, AZ. As the Director of Sales/Marketing for Stewart Title and having been in the Title business since 2005, this type of transaction confuses me. The reason it confuses me is because it complicates the real estate transaction, and it is not beneficial to the “Seller side Title Company.” The purpose for the blog is that I don’t think real estate agents fully understand this. Realtors think they are “helping” their client and possibly their preferred Title Company, when in the end they are doing the opposite. Here is some good information regarding if you should do a split settlement closing on your next transaction.
What is a Split Settlement Closing and How does it Work?
This is going to sound like Real Estate 101, but a split settlement closing is when the purchase contract is ratified the buyer picks where they want to obtain their Title Insurance for the transaction and close their side of the deal. Legally, per RESPA they have the right to do this. The Seller on the transaction is choosing to have their side of transaction completed by a separate Title Company, often times far away from the other Title Company and the subject property. You see how this already seems a little messy? As the transaction moves along there are not 1, but 2 companies working on the same closing! Both Title Companies work in conjunction with both Realtors to ensure a smooth “on time closing.”
Realtors…are you ready for the truth? Split Settlements are not as much fun for 1 side of the transaction. In fact, they are not great if you are the Title Company doing the Seller side ONLY. Let me explain. In many instances, real estate transactions can require a lot effort and all parties have to be working together for a successful closing. When the Realtor decides to do a split settlement closing it complicates the transaction by adding another party that doesn’t need to be there. When issues arise in the transactions, and one Title Company doesn’t work with the same urgency as the other company, it makes the transaction harder…not easier.
Title Companies make 85% to 90% of their money on the Buyers Side of the transaction. The main function of a Title Company is to complete the settlement and issue Title Insurance to the BUYER…not the seller. Title Companies make money from a settlement fee and the title policy that is paid by the buyer. When the other Realtor wants to use his/her Title Company for the Seller Side…they are handing their company a deal which will yield them anywhere from $400-$700 for the seller side only. Title companies have processors and assistants who get paid a good hourly wage or salary to work on their files, but working the seller side only will net very little money on the transaction. In some cases, depending on the complexity of the deal it can yield a LOSS for the seller side Title Company. In essence, when you send your preferred Title Company a seller side only…you are asking them work for free or very little. Wouldn’t it make sense to just have 1 company handle the entire transaction vs adding other parties, which complicates the transaction, and having them work for little money?
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What to do Next Time
The next time you receive an offer for your client’s listing…think of your client. This doesn’t necessarily mean you have to like or want to use the suggested Title Company on the contract…there are options. If you have a multiple offer situation, write up a counter offer for your Title Company to close the entire transaction (hopefully Stewart Title). Also, ask the buyer’s agent if his/her Title Company does remote closings (WE DO!). Sometimes a split settlement closing can occur because the listing agent wants to use a company close to the seller…not realizing that the buyer’s Title Company could come to the seller and sign them, which not only is super convenient, but would nix the split settlement closing from ever occurring. Also, think about the Seller Title Company and how it is not helping them. Trust me…they may smile and be nice when you bring them a Seller ONLY contract, but after you leave…they are not.
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