By Jill DeWit, co-founder Land Academy & House Academy
July 2, 2019
As investors for our own private company, we decide whether we wish to complete a deal through an escrow company/attorney and purchase title insurance or self-close a deal. It’s important to not only understand the process but also set your own comfort level and transaction procedures.
We often hear the terms “title” and “escrow” used synonymously, so it is first important to explain the difference.
“Title” is a shortened term for title insurance which is a form of indemnity insurance that protects the holder from financial loss related to
defects in a title to a property. “Escrow” is a service provided where an unrelated third party takes custody of a deed/document for a period and then takes effect when a specified condition has been fulfilled (like money changing hands).
Usually one will hire an escrow company to purchase a property with title insurance although there are times, we complete our own transactions.
What are our criteria for getting title insurance?
- Expensive Properties.
We typically get title insurance and close via escrow/attorney when we
are purchasing a property for more than $5,000. The reason is because we
have set that as our comfort zone and those less expensive properties
are often not worthy of title insurance (property is for purely recreational use).
- Transferability Issues.
If there is any sort of ownership issue that we cannot easily work
through, we will close through escrow/attorney and get title insurance.
It is not worth the risk of buying a property only to find out that the
transfer of ownership was done incorrectly.
- End User Ready to Build. If the end user aka buyer is purchasing a property with the intent of immediately building on it (SFR, cabin, mobile home etc.), then they will need title insurance as that is a requirement imposed by most construction lenders.
- Other/Simply to Provide Value. At times, we find properties that are worthy of purchasing with title insurance since it will immediately provide value to the buyer. And there is enough profit to justify the added expense.
Why is title insurance even a big deal?
Title insurance is not free, and deals take longer to close while the policy is being completed. Costs range from $500-$1500 and the title search requires going back through the history of the chain of title for a property, often 30-40 years. But the value provides peace of mind for you and your buyer as well as setting up your customer for whatever they plan to do with their purchase. I like to assume they intend to happily use their land for a long time.