How To Start A Title Company
There will always be a need for the services of Title Companies.
In 2021, a record 6.1 million house sales were completed in the US (Statista). That’s 6.1 million times a Title Company would have been part of the process – and that figure doesn’t even include other real estate transactions.
If you are a meticulous person with knowledge of the property market and its legislation, becoming a Title Officer and Examiner might be the perfect fit for you and a way to start your own business.
Business Description
The services of a Title Company are usually called upon once a seller and the buyer of a property agree on a contract.
At that point, a Title Company verifies legal ownership of the property and prepares all the documents necessary for closing. Services can also include appraisals, refinancing, mediation, and the issuance of title insurances. Such insurance protects lenders and homeowners from issues that may, for example, emerge from the previous property owners.
Industry Summary
According to credit rating company AM Best, the US continues to have one of the highest homeownership rates globally. The Title industry plays a vital part in this fact by facilitating the expansion of the secondary mortgage market and ensuring that all transfers of real estate are legally correct.
According to IBISWorld, the Title insurance industry alone is a $22 billion market in the US in 2022, measured by revenue.
The average Title Company in the US employs nine workers with typically highly specialized skills and operates out of a single location.
The industry is regulated at a federal level through the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), now combined into the TILA-RESPA Integrated Disclosure Act. In addition, there is generally also a myriad of state and local laws that this industry must follow.
Related Industries
Home Appraisal Business
Home Inspection Business
Property Management Company
Industry Trends
After a slight slowdown, the Title industry is forecast to grow in 2023. With rising mortgage rates affecting the housing market, commercial titles will likely help maintain revenue in the coming months and pick up a potential shortfall.
This industry is highly dependent on the performance and trends of the US real estate market. That market, in turn, ebbs and flows with the health of the economy in general and mortgage interest rates in particular. Lower rates but tighter credit requirements, the availability of housing on the market, rates of foreclosures, and interest of foreign property investors all impact directly on the Title industry
Target Market
Your target market is anyone or any business that wishes to sell or buy real estate, be that an existing residence, a new one, a commercial building, or land.
As soon as a mortgage loan is involved, the services of a title company are necessary for the purchase transaction.
Expand your network to include mortgage brokers and realtors, giving you access to their broad client base.
Checklist for Starting a Title Company
While starting any business can be challenging, there are a few key things you can do to increase your chances of success. By following this checklist, you’ll be on your way to creating a thriving title company.
Step 1: Write a Business Plan
A business plan is an essential road map for starting and growing a business. It is a living document that should be revisited and revised as your business evolves. A title company business plan will lay out your company’s purpose, structure, and operations. It should also include financial projections and marketing strategies.
To create a business plan for a title company, you will need to research the industry, understand your target market, and develop realistic financial projections. You should also create a detailed marketing plan that outlines how you will attract customers and grow your business. By taking the time to write a comprehensive business plan, you can increase your chances of success in the title industry.
Related: How to write a business plan
Step 2: Name the Business
When naming a title company, it is important to keep a few things in mind. The company’s name should be reflective of the company’s mission and values, as well as its location. It is also important to choose a name that is easy to remember and pronounce and, most importantly, is available to use.
With these considerations in mind, there are a few helpful tips for choosing the perfect name for a title company. First, try to come up with a list of possible names that reflect the company’s values and mission. Then, narrow down the list by considering what would be most memorable and easy to pronounce. Finally, choose a name that will help the company stand out in a crowded marketplace.
By following these tips, you can be sure to choose a name for your title company that checks all the boxes.
Related: Tips for naming a business
Step 3: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a title company business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Step 4: Apply for Business Licenses and Permits
There are a few different licenses that a title company may need in order to operate. These can include a business license, Employer Identification Number (EIN), a real estate license, and a mortgage broker license. Each state has different requirements for title companies, such as a degree requirement or passing licensing exams, so it’s important to check with the appropriate state agencies to determine what licenses are required. In some cases, a title company may also need to be bonded or insured. This ensures that the company can cover any losses that may occur during the course of its business.
Related: Common business licenses, permits, and registrations by state
Step 5: Find a Location
There are several factors when finding a location for a title company. Finding something located near related businesses such as banks, real estate offices, and mortgage companies is typically ideal because potential customers will be more likely to see your business while using their services. Also, being in close proximity will give you more opportunities to meet the owners and staff of these businesses, which will provide more referrals as well.
Step 6: Find Financing
If you’re thinking of starting a title company, you’ll need to find the right financing to get your business off the ground. One option is to seek out investors who are interested in supporting your business. You can also apply for loans from banks or other financial institutions. But before you do any of this, it’s important to put together a strong business plan that will convince potential investors or lenders that your title company is a good investment.
With a strong business plan and some careful research, you should be able to find the financing you need to get your title company up and running.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
Marketing a title company can be a challenge, as there are many competing companies offering similar services. However, there are a few key strategies that can help to set your company apart from the rest.
First, focus on providing superior customer service. Title companies rely heavily on word-of-mouth recommendations, so it is essential to create a positive impression with every client.
In addition, make sure to keep your marketing materials up-to-date and professional. Include information about your company’s history and success stories, as well as any new services or innovations that you offer.
Finally, don’t be afraid to use traditional marketing methods such as print advertising or direct mail.
By incorporating these strategies into your marketing plan, you can ensure that your title company stands out from the rest.
Related: Low-cost ideas to market a new business
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Step 9: Get Business Insurance
A title business traditionally needs a few different types of insurance, some of which will be required by the state licensing board.
Some common types of insurance for a title company include: errors and omissions, commercial general liability, professional indemnity, and a surety bond.
Errors and omissions insurance covers the business for losses due to errors or omissions in the performance of their professional duties.
Commercial general liability protects the business from third-party claims of bodily injury, property damage, personal injury, and advertising injury.
Professional indemnity insurance covers the business for losses arising from any negligent acts, errors, or omissions in the performance of their professional services.
Surety bonding, also known as a Title Agency Bond, is insurance that guarantees that title agents or agencies will comply with a state’s regulation due to defects in titles to real property.
Step 10: Hire Employees
A title company needs an accounting system to track its income and expenses, as well as the escrow balance for each property it handles. This information is used to prepare financial statements, which are then used by the title company’s management to make decisions about the business. The accounting system also provides data for tax returns and other regulatory filings.
There are many different software packages available that can provide all of the necessary features for a title company’s accounting system. The specific software package that is best for a particular title company will depend on the size and complexity of the business, as well as the preferences of the management team.
Related: Setting up the accounting for your business
StartingYourBusiness.com
Step 11: Set up an Accounting System
A title company needs an accounting system to track its income and expenses, as well as the escrow balance for each property it handles. This information is used to prepare financial statements, which are then used by the title company’s management to make decisions about the business. The accounting system also provides data for tax returns and other regulatory filings.
There are many different software packages available that can provide all of the necessary features for a title company’s accounting system. The specific software package that is best for a particular title company will depend on the size and complexity of the business, as well as the preferences of the management team.
StartingYourBusiness.comHow much does it cost to start a title company?
Your most significant expenses will likely be your licencing (unless you already are an agent), software, and your insurance.
Your company will be required to carry a surety or fidelity bond of $50,000 regardless of state. Fees typically depend on the title company’s net worth and coverage is in place to protect the customer should anything happen to your business. The other insurance you need to investigate is liability insurance. That covers your company should a claim of negligence be brought against you. Your liability insurance cover should be no less than $250,000.
Consider investing in specialized software and ensure you have the suitable space and setup to keep all your clients’ documents and information safe and secure.
Although you may prefer to start your title company from home, thus drastically reducing your start-up costs, ensure you have a professional space where you can meet with clients.
You may also, over time, diversify your services and may need to hire additional expertise.
Don’t forget to budget for your new business’s initial website development and marketing. Once your company is established, running costs to keep your marketing and communications running should be minimal.
How profitable is a title company business?
Your income will come from the fees collected for your services provided throughout a property purchase transaction. A buyer can commonly expect to pay between 2% and 5% of the amount loaned. The title fee is one of the main costs.
You will also collect a one-time insurance premium for the title insurance. This one-time fee is usually 0.5 to 1% of the property’s sale price.
Also, depending on your services offered, you might also collect mediation fees, for example.
Are there grants to start a title company business?
It’s extremely rare to find a grant to start a title company business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What skills are needed to run a title company business?
Top-notch organization and communication. Being organized and pragmatic are two excellent skills when running your own Title Company. In addition, having a system that keeps client details secure and not mixed up with one another is essential.
Be prepared to meticulously search for relevant documents and legal titles and communicate everything to your clients professionally and expertly so that they can make a well-informed decision. Communication includes being a good listener and presenting legal facts clearly and in a way that makes sense to a layperson.
Industry knowledge. In most States, this industry is quite heavily regulated. Therefore, understanding your legal requirements and how to meet them is vital. It’s also wise to stay on top of real estate and insurance trends so that you can offer your clients expert advice and professional service.
Relevant associations such as the American Land Title Association or the National Association of Insurance Commissioners are great networks offering resources, business tools, and education, but also advocacy.
Having credentials to back up your industry knowledge is necessary and will also be instrumental in attracting and retaining your customer base.
Licencing. Most States will require you to be at least 18 years old and pass a title agent licence. However, how you achieve and maintain your credentials varies from State to State; In some, you will need to complete course works; in others, you will also be required to complete a year of title insurance duties supervised by an attorney or title agent, for example.
What is the NAICS code for a title company business?
The NAICS code for a title company business is 541191.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Final thoughts
Although it’s a highly regulated industry, starting your own Title Company will not present a high barrier to entry and can be achieved with relatively low start-up costs. It is, however, an industry highly dependent on the real estate and mortgage lending market, so excellent connections and a good grasp of the sector will be essential.
