Would you like to know a hidden way to reduce closing costs? More specifically, how about a quick tip to save hundreds on one of the largest closing costs on a closing statement? I am referring to title insurance. Nearly every buyer of real estate requires a title insurance policy. As a real estate investor, in some cases, you are buying the property and pay for title insurance as the buyer. In other deals, you are selling the property and the buyer may require you to pay for their title insurance policy. Either way, as investors, oftentimes title insurance is a significant closing cost you'll be paying.
It's surprising how few title companies will tell you about this. It's such a simple tip that can reduce your title insurance policy by $200 or more. Here it is. Before closing, to reduce the total cost of title insurance, simply provide the title company with a copy of the existing title insurance policy on the property. Then, they will give you a discount on the new policy.
That was easy, wasn't it? That's often the way it works in this business. Real estate truth is oftentimes hidden but when you get to it, you can make a whole lot more money.
Where do you get the previous title insurance policy? The seller should have it in their big, thick folder of closing paperwork from when they bought the property. If it isn't in there, find the contact information of the title company from that paperwork and contact them. It my take an extra few minutes but its worth hundreds in savings and any savings in closing costs is usually pure profit in your pocket.
For the experienced real estate investors reading this, you may be mentally calculating all the deals you have closed whereby you didn't employ this simple technique. Ouch! But better late than never. For those reading this who are currently on the road to closing their first deal, the good news is that you don't have to learn this lesson the hard way. Good for you for reading this article. Real estate education pays.
Closing costs can eat your profits alive. I spend quite a bit of time each week pouring over HUD1 Settlement Statements of my apprentices, finding ways to reduce closing costs. In most closings, the buyer, the seller, or both, are paying too much in closing costs. And rarely are the brokers, loan officers, title companies, and closing attorneys going to tell you where you are overpaying. It requires a trained eye, to spot where they may be trying to gouge real estate buyers and sellers.
This tip is just the beginning. But it is simple and applicable to almost all closings. Do you have any other tips for reducing closing costs?
Michael Haltman says
I stumbled across this article and wanted to throw my own two cents in through my perspective as the owner of a title insurance provider in New York State.
In New York the title insurance premiums are not cheap and we feel that as a firm we are being well compensated through the premium alone without gauging the buyer with fees that are way out of line.
In fact our policy is to charge out cost for those fees potentially saving our clients many hundreds of dollars.
Buyers of other types of products will shop around to save $20, so why not title insurance as well!
‘Print this if you are planning to purchase commercial or residential real estate in New York!’
President and Owner, Hallmark Abstract Service
Ronnie Sparrow says
Phil I bought a property in July of this year 2013 we are now flipping and selling to new buyer. When I bought the property in July we got title insurance which the seller paid for at closing. Now i am the seller , we close on November 19th. So I can pull out the title insurance policy and use it to get a discount at closing?
Phil Pustejovsky says
Yes. Perfect example.
By bring up the previous title insurance, the discount is given by the new title company because they dont have to do as much work? Am I understanding this? Thanks – great nugget!
Phil Pustejovsky says
They don’t have to insure the title for all of history…just the time between the previous title policy
Clay Tate says
Phil, great tip in the blog. As a realtor this is a tip that i always share with my sellers and that has saved them sometimes up to $500 when they were paying for the title insurance policy. Also in your response your logic is sound, but I take a bit of offense to you lumping realtors into one large group. In fact most realtors in our area (middle Tennessee) share the truth about who is actually paying for what at the closing table. The fact is some buyers prefer the closing costs “paid by the seller” at closing… It’s not a matter of fooling anyone as much as it is giving somebody the option to have less out of pocket expense at the closing table. Either way the buyers are still paying it. Just my take on it.
Phil Pustejovsky says
From your response, it sounds like you’re doing great things for your clients. I couldn’t agree with you more when you explain that having a seller pay for a buyer’s closing costs is not some magical trick to pay less in closing costs, but instead, a great way to reduce the out-of-pocket requirements of a buyer. I’m in Nashville right now as I write this. I met with the buyers on a deal I have up for sale here in Middle Tennessee and as the seller, I am paying all of their closing costs. The buyer is a first time home buyer getting an FHA loan and all she has is that 3.5%, not one penny more. So you’re right on with that point!
Saving money on title insurance should be explained by title companies on every closing. But it isn’t sometimes. It would be an added bonus if all real estate agents mentioned it as well. My intent was not to lump all real estate agents together. But I’m not quite as certain as you that most real estate agents do it, even in Middle Tennessee.
Furthermore, I am fairly certain most Buyer’s real estate agents tell their clients that their “services are free because the seller pays their commission.” I would much rather agents tell their clients that there is a 3% fee for their services, which doesn’t come out of their pocket directly because it is paid on the seller’s side of the closing statement but that in full disclosure, in most cases, the seller would take a lower purchase price in lieu of the buyer’s agent’s 3% fee. BUT in having a real estate agent represent the buyer, the cost of the services is a bargain. (and then the buyer’s agent can list all the reasons why it is wise to hire him/her). But very few buyers real estate agents will say that.
Lastly, and this is a tiny tid-bit, I am careful not to use the lump all real estate agents into the label, “Realtor”, because it is supposed to represent a specific type of real estate agent that is a member of the National Association of Realtors and has agreed to the Realtor Code of Ethics which hypothetically holds them to a higher standard. My latest continuing education class last week really hammered this topic home. Again, a tiny tid-bit, not a substantial part of this discussion.
Thanks so much for your comments Clay and congrats on your successful real estate business.
Stephanie Clark says
First of all, thanks for the tip on the insurance. I may be in the minority, but I always try to get the best deal for my client or customer, no matter if I am representing the buyer, seller or acting as a dual agent. In Ky where I am, seller always pays for new deed. This cost anywhere from $50-$125 depending on who does it. I always make sure my seller is getting the best deal in that and doesn’t just use the banks attorney, etc. that is just one example.
Jim Slack says
A little tip from a realtor, sellers will pay all the closing costs because it is a standard because of the market dip and that the buyers bank requires it on low down deals. If you say it this way and they check it out thats what they will be told by professionals, like their bank.
Phil Pustejovsky says
I appreciate you taking the time to make a comment on my blog. However, I strongly disagree with your position so hopefully this doesn’t come across as rude when I say the following…Jim’s whole angle here is a complete misconception created by real estate agents. Agents that represent Buyers love to use the sales pitch, “Hey, don’t worry, the seller pays my commission.” As well as, “Hey, we’ll get the seller to pay the closing costs.” In both instances, the party in the transaction who is really paying for those costs is the buyer. Why do I say that? Because in the real world, sellers are concerned about what they will walk away with in their pocket at closing. Less closing costs means that the buyer can get a lower purchase price. The more closing costs, even if the “seller is paying for it”, the more the purchase price has to be. I hope I am explaining this with clarity because it is a myth spun by real estate agents across America. They love to tout that the seller pays for it when, in fact, the buyer is the one paying for it.
Bottom line is that the less there are in closing costs, the better for the buyer and the seller. Meanwhile, agents, mortgage brokers, title companies, closing attorneys and the other vendors that get paid at the closing have spent decades honing in their reasons why closing costs need to be higher than they should be. They are trained experts at ways to convince real estate investors why they need to pay more in closing costs. Jim’s comment underlines my point entirely.
Daryl Murphy says
Thanks always… lifes good