The same forces that changed the way consumers search for houses will change the way they shop for real estate closing services. As Web-savvy consumers learn that they have the right to choose their title insurance companies, escrow and settlement services, residential home and pest inspectors when they are buying, selling or refinancing, they will comparison shop. The result also will be the same: single Web sites will aggregate hundreds of thousands of service providers and other data that will enable consumers to find and compare services and rates.
One-stop shopping sites will help consumers and real estate professionals estimate their closings costs, select the services they need, and save money on the way to making more informed choices. Easy access to accurate data will educate the consumer and take costly “surprises” off the real estate closing table.
For real estate agents and brokers, the new added value to buyers will lie in being the provider of knowledge rather than the gatekeeper to services, using new tools to pass along opportunities to their clients.
For consumers, change cannot come soon enough. Most home buyers spend tens of thousands of dollars on real estate closing services necessary to complete the purchase of a home without researching their vendors, comparing costs, and making sure they are getting the best deal. For a $500,000 home with a $450,000 mortgage, they’ll spend the equivalent of a brand new SUV on vendors who didn’t compete on price and had little incentive to deliver value. Most buyers will have no way of knowing whether the companies they hired did a good job for the money they were paid.
In a recent investigation of the title insurance industry, the General Accounting Office found a series of factors that raise questions about the existence of price competition:
- Consumers find it difficult to shop for title insurance, therefore, they put little pressure on insurers and agents to compete based on rates;
- Title agents do not market to consumers, who pay for title insurance, but to those in the position to refer consumers to particular title agents, thus creating potential conflicts of interest;
- A number of recent investigations by HUD and state regulatory officials have identified instances of alleged illegal activities within the title industry that appear to reduce price competition and could indicate excessive prices;
- As property values or loan amounts increase, prices consumers pay for title insurance appear to increase faster than insurers’ and agents’ costs.
Opacity in closing services not only costs consumers millions of dollars a year, it fosters an environment where fraud can flourish. Because consumers play little role in the hiring of closing vendors, conflicts of interest can occur. These and other factors put consumers in a potentially vulnerable situation where, to a great extent, they have little or no influence over the price of title insurance but have little choice but to purchase it.