Affiliated Business Seminar a Success
On November 16, 2006 Integrity Title Records hosted another successful educational seminar regarding Affiliated Businesses (ABAs) in Houston, Texas. This is the fourth such seminar Integrity has hosted over the last 3 years.
Attendees included Real Estate Agents and Brokers, Mortgage Lenders, Homebuilders, Developers and Title professionals interested in managing ABAs. Some of those present were Fee Attorneys or Escrow Officers interested in forming their own title agencies.
Initially, the discussion centered upon the changing title industry in Texas. Previously only very large producers, such as a large homebuilders, could afford the $18,000+ cost (Harris County alone) for title plant access before Integrity entered the market. NOTE: In Texas, you must own or lease a "Title Plant" to be a licensed title agent. Also you must own or lease a plant in every county you have a physical location. Now, even a medium sized title agency can compete effectively in the market.
Most Real Estate Agents have embraced Affiliated Businesses by providing mortgages but have not formed their own title agencies. In many cases this is because they didn't realize they could do so or they have been told that they can not or should not be in the title business.
I can not tell you how many times we've heard, "I thought you had to be an attorney to in the title business?"
One question that came up, "Why are the major title companies not putting on this kind of seminar?" The simple answer is, "they don't want you in the business to compete against them."
Our company subscribes to an industry publication called "The Title Report" which is owned by October Research. In cooperation with October Research, Stewart Title and others have sponsored similar events geared toward Affiliated Businesses. This is great but it's interesting that all of these events have been held outside of Texas.
Why do the major underwriters want ABAs in others states and not in Texas? Two reasons, (1) market domination and (2) vertical integration. Underwriters in Texas earn 15% of the Premium and Title Agents earn 85% of the Premium. If you are both the Underwriter and the Agent (aka Direct & Affiliate Operations) then you bring home 100% of the premium.
Over $1.5 Billion in title premiums were written in Texas last year (does not include Escrow Fees) and the five or six major Underwriter's Direct operations dominate the market particularly in the major metropolitan areas. Approximately 60% of all premiums in Texas were generated by Direct or Affiliate operations (Affiliates as defined by the Texas Department of Insurance are title operations owned at least 10% by Underwriters). That leaves 40% of the premiums to be distributed among hundreds of independent Title Agents in Texas.
If Texan want to keep more of the money generated in the title insurance business in Texas then it is important for independent title agents to succeed. Another way to keep the money made in the title business in this state is through the growth of Affiliated Businesses.
In addition to discussions about market conditions we talked about:
- Who can own a Title Agency
- Why "Producers" should consider owning an interest in a title agency
- The benefits to consumers provided through Affiliated Businesses
Some may ask, "How does an ABA benefit a consumer?"
Consumers want convenience and prefer to deal with someone they know and trust. Therefore one-stop-shopping is important to consumers. If the consumer receives a high level of service from their real estate agent or builder then it is likely when given the choice to do business with the agent's mortgage or title company they will consider doing so, particularly if the fees are comparable for mortgages or title insurance. NOTE: In Texas, title premiums are regulated by the state and therefore agents must compete on service, but it is not always a level playing field because of illegal kickback and rebates in the industry.
The title industry by nature is a referral business. For that reason, there have been many abuses. Although it is a violation of RESPA and Texas Procedural Rule 53 (P-53), the kickbacks by title agents continues. The $10,000 fine per violation for both the giver and the receiver has not deterred some from continuing these practices. Kickbacks to real estate agents or builders may include exclusive trips to destinations like Aspen, Colorado, golf outings such as expense-paid trips to the Masters Golf Tournament, expensive luxury gifts, tickets to professional sporting events or the sponsoring of company parties.
In a typical real estate transaction, the real estate agent or mortgage company refers the business to a particular title agent without informing them that they, the consumer, has a choice of where to close the deal. In an ABA, Agents are required to (1) disclose they own an interest in the title agency to which they are referring the business; and, (2) inform the consumer that they have a choice to close elsewhere. RESPA requires this disclosure be given to the consumer at the time of the referral.
In general, the requirements placed on ABA owners are more stringent than non-owner agents and the penalties for non-compliance can be considerable. In a practical sense, you can not avoid Real Estate Agents referring business but the ABA does provide a means to avoid the kickbacks and other illegal activities associated with those referrals.
Robert Philo, Regional Counsel with Southern Title Insurance Corporation spoke about the Real Estate Settlement and Procedures Acts (RESPA) and the need for strict compliance by Affiliated Businesses.
Mr. Philo gave some historicial perspective of the Act and the practical applications of the rules. As I stated, many real estate agents and homebuilders already provide a mortgage product so the same rules apply for title dealing with (1) Disclosure (2) Choice (3) Distribution of Profits.
Mr. Philo is the former chief regulator for title insurance in the state of Texas and has served in every major office in the Texas Land Title Association including President.
After Mr. Philo spoke Mr. Phil Wells, Vice-President of Southern Title spoke briefly about the Real Estate Services Providers Council (RESPO). RESPRO looks out for the interests of Affiliated Businesses and Joint Ventures by providing educational opportunities and monitoring of both state and national legislation. As the recently-elected President of the Texas State Chapter of RESPRO, I encourage all Texas title agents to become members. Membership Applications were distributed and an information table about RESPRO was set up in the break-out area.
When we returned in the afternoon, Marian Cones, CFO of Integrity discussed the capitalization requirements of a new title agency. One of the first questions we hear from prospectives agents is "how much is this going to cost?" An Affiliated Business is a stand alone title agency with the same costs associated with forming any new title company. Those expenses include Errors and Omissions Insurance, Bonding, and Application Fees to the state.
The other question is "how much money am I going to make?" As Marian stated, "there are many factors that determine profitabilty including the number of transactions, the capture rate, the facility, and the number of locations you require to do business.
For those serious about forming their own title agency, Integrity has a step-by-step email with links to the appropriate forms from the Texas Department of Insurance and various service providers to the title industry.
Much of the challenge of forming a viable title agency deals with accounting functions. Marian has condensed these questions and answers into an informational email called "Accounting for New Title Agents." The information is limited to accounting for Texas title agents.
The final presentation of the day was a panel discussing on which Phil Wells of Southern Title who spoke on what he looks for in a new title agent and his experience with successful Affiliated Businesses. Mr. Wells is an expert on ABAs and has extensive personal knowlege of Affiliated Businesses that he shared with the attendees.
The panel also included three title professionals who are currently operating Affiliated Businesses, each with a slightly different business model. The panel included Robby Wilburn, President of Guardian Fidelity Title, Marc Steinburg, Principal with Innovative Title Company and Greg Nix, President of Exodus Title Company and Priority One Title.
The session was very informative and gave the audience and the panel a chance to discuss many of the fundamental questions related to forming and operating an Agency and an ABA.
Rather than trying to discuss the specifics of each of these presenters, I encourge you to contact them directly to discuss their programs.
Ten Vendors/Sponsors provided information about their services such as title software, 1031 Exchange Services and escrow accounting services.
For those unable to attend, we hope to have another seminar in the first quarter of next year but in the meantime, if you have any questions, feel free to contact myself or Marian directly.
Affilated Business "One Stop Shopping" Seminars
If you are considering forming an Affiliated Business in Texas there are two events coming up you should consider attending:
RESPRO 2006 Fall Seminar, Fort Worth Texas - October 9-11, 2006 - the "Real Estate Services Providers Council - RESPRO" represents Affiliated Businesses and One Stop Shopping. For more information about RESPRO go to:
http://www.respro.org/ . For more information about the Fall Seminar
[Click Here]Affiliated Business Educational Seminar, Houston, Texas - November 16, 2006 - at the Sheraton Brookhollow Hotel. For more information
[Click Here]Title Business is Changing
The title business in Texas is changing. A tremendous opportunity exists for those interested in operating or owning an interest in their own title company.
Opportunities exist for Agents, Brokers, Builders, Developers, Lenders, Banks, Credit Unions and other real estate professionals to own an interest in their own title agency.
REASONS FOR CHANGEIntegrity Title Records has built title plants in seven counties in the Houston and Dallas areas.
Now, medium to small sized firms can effectively compete as Title Agents.
CAN I OWN A TITLE AGENCY? YES, IF YOU…- Have the necessary capital
- Can develop and market the business
- Partner with highly skilled title industry pros
- Have an underwriter willing to sponsor your license
- Follow the Rules of the Texas Department of Insurance
- Follow the Rules of the Real Estate Settlement & Procedures Act - RESPA
- Are willing to work hard and follow the rules
Meet and learn from highly skilled title professionals:
- Affiliated Business Arrangements - What they are and how they work?
- ABAs & RESPA - Real Estate Settlement & Procedures Act Compliance
- Texas Department of Insurance Rules
- Increasing Customer Satisfaction
- Earning additional revenue legally from the referral of business
- Business Creation
- Title Underwriting Requirements
- Owning an interest in a Title Agency. Hiring staff, regulatory compliance, closings, examinations, escrow and accounting
- Partnering with title professionals who will assist you with management of the Title Agency
Benefits of owning a Title Agency
- Substantial Return on Investment
- Diversified Revenue Stream
- Better Customer Service
- Competitive Advantage in the Marketplace
- Starting your Own Agency
- Title Agency Products and Services
- Online Database and Research Tools
It’s up to all of us to build a better title industry that rewards people for their efforts and gives everyone an equal opportunity to succeed. Ultimately, we can enjoy a more prosperous future and provide higher quality title services to consumers. The future is in your hands. Please join us at the Texas Affiated Business Educational Seminar.
SPACE IS LIMITED. FOR MORE INFORMATION AND TO REGISTER [Click Here]
Affilated Business Blog - Welcome
Welcome to the Affiliated Business Blog.Affiliated Business Arrangements (AfBA's sometimes called ABAs) and "One Stop Shopping" are the hottest trends in the real estate business.
What are AfBA's?
(per RESPRO):Congress recognized the potential consumer benefits of one-stop shopping in 1983 by amending RESPA to allow for the creation of affiliated business arrangements (AfBAs) to exempt from RESPA returns on an ownership interest in a settlement service provider (e.g., dividends, profits) as long as:
- The financial interest is disclosed to the consumer (the "affiliated business arrangement" or "AfBA" disclosure);
- The consumer is not required to use the affiliated settlement service; and
- No other payments prohibited under RESPA are made.
More information about the history of AfBA's can be found at RESPO.
This forum is geared toward Texas AfBA's but will have relavance in other markets. AfBA's are not as common in the Lone Star State as in other parts of the country but they are not new. In fact, most large builders own their own mortgage and title operations; Pulte Homes - PHT Home Title, DH Horton - DHI Title, Lennar Homes - North American Title, etc.
Many smaller builders, mortgage companies, developers, banks, credit unions and real estate agencies realize they can now enjoy another revenue stream from the sale of title insurance.
In Texas, real estate agents and home builders have already embraced the idea of providing mortgages but the title business has been more elusive. There's a reason for this.
Think of the title industry as the man behind the curtain in the Wizard of Oz. He is pulling levers, shooting fire and blowing smoke to make it appear that only the "Great Title OZ" could possibly make money in the title business. To put it nicely, that is horsefeathers!
Title companies have done a good job of keeping "people like you" out of the business. They have arbitrarily kept the cost of title plants high (you must have a title plant to be a licensed agent) and have disseminated erroneous information such as "you have to be an attorney to be in the title business."
Having said this, the title business is not an easy business. In Texas, the title industry is highly regulated and you MUST employ or partner with experienced title professionals if you expect to be underwritten, to be licenced and to be successful.
Before investing in a title agency you should answer certain questions:
- Who will manage and operate the Title Agency?
- How will the service compare to what I am currently receiving?
- What are benefits and risks of owning an interest in a Title Agency?
- How do I partner with title professionals?
- What are the RESPA rules for Affiliated Businesses?
- How much business can I reasonably expect to generate?
- How do I find an Underwriter to sponsor my Agency?
- What are the costs of capitalization?
Answers to these questions will help you make an intelligent decision about whether or not you have the volume, expertise and other resources required for a successful AfBA.
Perhaps, you can direct a large amount of business but not enough to justify your own title agency. In that case, you may want to network with other like-minded individuals to determine if together you have the volume and chemistry for success.
The Real Estate Services Providers Council (RESPRO) is an organization which represents the interests of AfBA owners and managers.
From the RESPRO homepage:
The Real Estate Services Providers Council (RESPRO®) is a national non-profit trade association that unites providers from across the home buying and financing industry towards one common goal: a business and regulatory environment that better enables all of our members to efficiently offer affiliated services through subsidiaries, joint ventures, and strategy partnerships.
Our members are cutting edge real estate broker-owners, real estate franchisers, mortgage lenders/brokers, title insurers/agents, home builders, home warranty companies, and other settlement service providers throughout North America.
We represent their affiliated businesses before federal and state policymakers, help them manage their confusing and changing regulatory environment, and enable them to share ideas and develop successful affiliated businesses and strategic alliances in compliance with federal and state laws.
What's changed?
Why does forming an AfBA's make more sense now than it did before? What's changed? In Texas, the high cost of title plant access has been greatly reduced since Integrity Title entered the market.
In 2002, if you wanted to be a Title Agent in Harris County, Texas there was only one title plant provider, a "Joint Plant" (owned by the major underwriters and a couple of large independents) and the access fee was approximately $18,000 per month plus other fees. At this cost, you could only be a very large agent to afford plant access. In 2003, a new Title Plant entered the Harris County market and within 30 days the Joint Plant lowered its monthly fee to under $8,000. See Houston Business Journal Article dated September 26, 2003 and follow up story dated October 4, 2003. Integrity Title has built title plants in the Dallas market and the joint plants there have also followed suit. In Dallas County, the up front cost to buy into the plant was over $2 Million and the monthly fee was $25,000 per month.
Anyone remotely connected with the real estate industry is familiar with the Texas Department of Insurance Procedural Rule - 53 against illegal rebates. The reason this rule was enacted is because Title Agents were buying business by paying for printing, luxury boxes at sports stadiums, sending real estate agents on exotic trips. The cost of these and similar activities were being fed into the insurance rates and finally the Commissioner had enough and enacted this rule as an attempt to reform the industry.
From an AfBA owner's perspective, who needs incentives like these when you can legally own an interest in your own title agency and pay for your own trips and buy your own sky boxes? Why should the title industry subsidize real estate agents when they can pay for these luxuries themselves legally from the profits of an AfBA?
Writing on the Wall
Recently, ReMax of Texas started a statewide title agency with Chicago Title. One of the largest ReMax brokers and his associates, on the west side of Houston, have operated a successful title business for over 2 years. Over the last few years several mortgage companies have started their own title agencies with success.
The writing is on the wall. When the largest real estate company in world, Cendant (Coldwell Banker, Century 21, Prudential, etc.) buys the largest independent title Agency in Texas, Texas American Title Company, [Article] it's just a matter of time before every real estate company will, at the very least, investigate the possibility of generating revenue from the title business.
There is a sea-change occuring in the real estate, mortgage and title business in Texas. This bodes well for those willing to accept the challenge and take advantage of the new market conditions.
Our objectives are to:
- Give Producers (i. e. Real Estate Agents, Mortgage Companies, Builders, etc.), the information they need to determine if starting an AfBA makes sense
- Discuss - RESPA complicance and State of Texas Regulatory Issues
- Discuss why some AfBA's work and why others do not
- Explore how AfBA owners can work together in this new business environment
- Host educational seminars to network and discuss issues with other AfBA's owners and prospects
- Stay abreast of regulatory issues involving the title industry and AfBA's
