Title companies are nothing new in the real estate industry. But do you understand their function and how vital they are to you?

Title insurance is the inverse of other insurance coverages. Instead of assuming risk, title insurance companies eliminate the risk with a one-time payment, assuring the homeowner maintains the title as owner of the property. Title companies defend homeowners against any lawsuits attacking the title or if there is a covered loss, they will compensate them for the amount of the policy.

Title insurance is essential to the real estate and lending industries. Without it, you couldn’t feel confident you truly own the homes—or borrow against their collateral.

Ensuring ownership

Title insurance is different than other types of insurance.

Most consumer insurance policies—think car or homeowners insurance—assume risk. A policy gives you money if an adverse event qualifies for reimbursement.

In contrast, title insurance eliminates risk. For a one-time fee, you get an assurance that title will not be taken away from you once you own the property. That’s because the title company will defend against any lawsuits attacking title, or if there is a covered loss (such as the title being vested in an owner different from the one stated on the policy), the title company will compensate you for the amount of the policy.

Title companies do this by searching property history to ensure there are no unpaid debts, liens, or heirs that could contest the buyer’s ownership. Companies also resolve any fraud or forgery found in the chain of title before the buyer purchases the property.

Discovering property history

How can title companies ensure no valid claims can be made against the buyer’s ownership?

To be licensed in Texas, title companies must own or lease a title plant: special software or a filing system to search geographically indexed title records. Escrow officers search the records using a property’s legal description and review a run sheet of property information. Officers also search for the buyer’s and seller’s names to ensure there are no tax or judgment liens filed.

In the rare event that a county does not have a local title agent with geographically indexed title records, title professionals have to go to the county courthouse and manually do a grantor-grantee search. That’s tracing the property history backward one sale at a time.

Most properties need some kind of correction, or curative work, to their title information. It may be something simple like correcting a prior instrument with an error in the legal description, ordering proof of a mortgage payoff, or ordering homeowners or property association information. If the problem is small, the title companies can handle it themselves with the seller’s permission.

The escrow officer’s work depends on the property. If a property has changed hands often and everything’s up to date, it could close in as little as three days.

Working on a property that’s been in the same family for generations is not as easy as you might think, though. Title agents need to trace the property back through probate and wills to determine heirship. That may take 30 to 45 days.

Officers must also do significant work when a deceased homeowner’s estate isn’t organized, such as if there is no will. They have to make sure there are no unknown heirs. Sometimes people sign affidavits and they forget to include someone, or they don’t think an estranged son is entitled to the property. They may search obituaries or just Google these people.

Complex issues, such as untangling IRS tax or judgment liens, bankruptcies, or imminent foreclosures, may require involving attorneys. Title companies can work to get lien releases against the property, but these do not release the debtor from any personal liability on the debt if a balance remains.

Why title matters

In theory, you can buy and sell a property without title insurance. If you pay cash and all of the paperwork is clean and in order, it can be done. But doing so comes with risks.

For the vast majority of transactions, title insurance builds the trust required to conduct business. Buyers want to know they truly own the property.

Homeowners take out second mortgages and borrow against their homes to pay for a child’s education, for example. Clean title records allow this to happen.

Title insurance is the product title companies offer, but title companies also offer other important services during the real estate transaction. They can collect the funds, liens, and bills, and then handle the final exchange between buyer and seller, and then  record the transaction and make sure everything’s in the deed and that ownership passes.

Title companies handle the actual closing and amend all of the records so everything’s up to date and accurate. If title companies disappeared tomorrow, the property records could be in disarray within five years. “We are constantly cleaning them up and correcting legal documents, sometimes requiring the prior owners’ signatures. And if you wait a few years, you may have to track down the executor of the owner’s estate.”

Excerpts from Inman Article

Admit it, you have Googled your property address or gone to Zillow to see how much your home is worth. Haven’t we all?

Everyone probably has checked online to see what the online AVMs (automated valuation models) say their home might be worth at one time or another. 

It may be good to understand that any AVM, in and of itself, is not an effective way to value a property.

Although one AVM for any given property might be close to reality, there is usually a wide disparity when comparing a few AVMs side-by-side. 

What is an automated valuation (AVM)? It’s a fast and easy way for homeowners or prospective buyers to get a ballpark value for any given home. 

AVMs are programs that automatically analyze various data points to produce an estimated value of a specific property. Online visitors can visit an AVM website (the most famous is Zillow’s “Zestimate”), type in a property address, and the AVM engine will use linear and multiple regressions to form an estimated market value. 
The engine’s algorithm typically uses the age of a home, current market values, area trends, historical data, specific features of the property, and so on.

Although it’s well-known that AVMs (automated valuation models) can be speculative and inaccurate, it’s a good idea to examine what the various websites are listing as the current value for your home.

In our market, three readily available AVMs are Zillow, realtor.com and Homes.com. If one of those three does not provide a value, you can also go to a site such as Redfin. The easiest way to get their valuation is to type the address into Google. 

Under the results, you should quickly find the three different websites — click on each, and, in most cases, the AVM will pop up right away. If, for some reason, the site does not show up in the Google search, go directly to each site and type in the address. The AVM should pop up on the front page unless the home is new or has just sold.

In most cases, there is a noticeable difference between the valuations. Many people are shocked to see the spread between the numbers, but the data can be misrepresentative based on the property’s actual condition and upgrades.

AVMs by any website can fluctuate dramatically in a short period based on what is happening in the local market. Here is an example from a home that recently sold:

As an example, the initial Zestimate for a home was $1,434,031. Based on the level of amenities, it was listed the home at $1,599,950. The very next day, the Zestimate jumped to $1,691,056. 

Once the home was in contract one week later, the AVM jumped again to $1,806,823. 

In the meantime, realtor.com showed the value at $1,615,734. With 11 offers, the home sold for $2 million, and 60 days later, the Zestimate showed the value to be $2,080,800 while Redfin placed the value between $1,720,000 – $1,890,000.

Good to note:

Any AVM will be averaging home values in any given neighborhood based on historical sales — not property condition or the level of amenities of any specific home.

AVM valuations are speculative and therefore cannot be used to accurately value a home. For this reason, appraisers will never use AVMs to provide market values for any given home.

The difference between an AVM and a CMA 

The best and most accurate valuation for any given property will be a Realtor’s comparative market analysis (CMA). Instead of simply looking at overall market trends and a home’s configuration, a CMA takes into account property conditions, amenities, upgrades, condition of the overall neighborhood and other specifics that an AVM cannot effectively address.

When preparing the CMA a good agent will include all of the pictures from every property included in the CMA. Using all the images helps you see quickly and understand the difference between the various homes, and it further accentuates why AVMs are unreliable. 

Pricing 

Any real estate agent on any given day can promise you that they can get you a specific price. Unfortunately, this is simply not true. The number you see in your agents CMA is the recommended list price if you chose to go on the market today. 

If you are not going on the market today, your agent will rerun the numbers the day before your home goes “live” to ensure that it is priced correctly for that market at that time. 

Even then, the final price you receive is going to be contingent on: 

• The level of your amenities
• The amount of property preparation you are willing to do
• Professional staging
• The quality of the photos and other listing media
• The state of the market when you go live 
• Most importantly, the number of buyers who are currently out looking for a home like yours (once it hits the market) and what they are willing to pay for it 

As you can see, there are a vast number of variables that will impact your selling price.