Whenever you buy or sell a home, multiple parties are typically involved in the transaction. Real estate agents negotiate the deal, mortgage lenders provide the financing, appraisers determine how much a home is worth, and the home inspector inspects the property to identify problems.
Another party that plays a vital role in a real estate sale is the title company.
What Is a Title Insurance Company?
Title insurance companies perform title searches to verify ownership of a home before it’s sold. During the title search process, the company combs through public records and other databases to ensure there are no defects on the title before someone else buys it.
Defects on a title might include unpaid taxes, property liens, record errors, fraud, or undiscovered wills that raise questions about whether the current owner has the right to sell.
A property title and deed are closely related but are two different things. A deed is a physical document that transfers a property from one person to another. Holding a title to property means you have the right to ownership and that legal right is transferred with the deed.
The title search results come in a title report, which may also include an offer for title insurance. Title insurance protects you from loss if someone comes out of the woodwork after the title search claiming they have a legal right to the property.
Lenders typically require that homebuyers at least purchase lender’s title insurance. You may have the option to purchase owner’s title insurance as well.
In addition to performing a title search and offering title insurance, title companies may offer escrow settlement services. Escrow settlement occurs when a third party acts as the middle person to safely exchange funds between parties and process paperwork for the real estate transaction, such as recording the deed.
Why You Usually Need a Title Company When You Buy A House
A home is a major purchase, and performing a title search is a step that ensures you’re buying with full awareness. If you know about liens early enough, the seller may be able to resolve them before you buy, or you may be able to walk away from the deal entirely.
In addition to identifying unpaid liens or property fraud, a title search can uncover easements. Easements give another entity or company permission to use land in some way even though they don’t own it. Someone’s right to use your driveway or yard is something you’ll likely want to know about before buying because it could be a dealbreaker.
While it may be optional, obtaining owner’s title insurance when buying a home can also be worthwhile. That’s because it protects your financial interest if someone brings up a claim against the property after the title search is performed.
How the Title Company Checks Your Title
Title companies check titles by searching through public records, such as deeds, divorce decrees, court judgments, tax records, and assessments. They may also use databases called “title plants” that pull public records from multiple sources to speed up the search process.
A standard title insurance policy generally protects you from defects in the title that come up and are found through public records. Extended policies may offer additional coverage to protect you from defects found later that are not a matter of public record.
Title Company Fees
What you’ll pay to the title company in title service and escrow fees will vary depending on factors like the home you’re buying and where you live.
For title insurance specifically, factors like the coverage, state regulations, and whether you bundle owner’s and lender’s insurance can also play a role in how much it will cost you. On average, title insurance may set you back around $1,000.
How To Choose a Title Company
When buying a home, your lender may give you a list of title companies that you can choose from. To find the best option, compare services, title insurance coverages, and get quotes. If you have the freedom to choose your own company, asking around for referrals from people you know and getting quotes could help you find the best deal.
A title search is one of several important steps in the home-buying process. A clear title report gives you confidence in knowing that you’re buying a home without liens and other encumbrances, and title insurance provides coverage if there’s a claim against the property later on.
Frequently Asked Questions (FAQs)
Who chooses the title company?
Your lender may give you a list of title companies to choose from, or you may get the option to choose your own title company. If you get to choose your own, asking for recommendations from friends or family could help you find a reputable title company.
Who pays title company fees?
Title company fees are one of many closing costs, and these are generally paid for by the buyer. However, in some instances, the seller may be willing to chip in and cover some of the fees in the real estate transaction.
How long does it take a title company to clear a title?
It could take one to two weeks for the title company to clear the title. However, in some cases, it may take no more than 24 to 48 hours. Your title company can give you a more accurate timeline relative to your circumstances when buying.