Why is title insurance so expensive?

[dennis thompson]

We are buying a house. one of the costs is Title Insurance. My lawyer has estimated it to be $6,500. We are in New Jersey.
Why is it so expensive? Any thoughts on how to reduce this cost?
Thanks

[Nicholas Lawrence]

Title insurance used to just guarantee title, which could be done pretty cheaply if the jurisdiction had good land records. The title insurance company would research the land records, make sure there were no issues with title, and then the cost of the insurance was basically the cost of the research plus a little bit to cover the risk that they turn out to be wrong.

Nowadays you can buy options that include insurance for things like unrecognized code violations that may come up later and have to be corrected. Those cannot be as easily verified by the title insurance company, and so it costs more because there is more risk. Also, the more complex the codes and regulations are (you are in New Jersey?) the more it costs because there is more risk.

In terms of getting cheaper insurance, you can shop around. Real estate agents sometimes have deals with title insurance companies that are not really in the buyer's best financial interest, and shopping around can help you avoid those situations. You can also ask for the details of the policy and see if you are buying things you don't think you need. Like with car insurance, you may decide you don't need the option that provides you free coffee and donuts while you wait for the complimentary tow truck to deal with every flat tire. If there is some of that stuff in the policy you are being offered, talk to your lawyer about whether you really need it, and you may be able to decline some options.

Generally speaking though, I think you want title insurance.

[Sam Murdoch]

... and to be truly cynical - or realistic - because most mortgage lenders demand Title Insurance, the insurance companies have you at their mercy. That is pretty much the definition of insurance companies if you ask me - a necessary evil controlled by the profit motive.
With respect to some of you insurance folks out there who have your client's needs and best interests at heart this is, sadly, not the rule of the industry.

[Brian Tymchak]

Any thoughts on how to reduce this cost?

Thanks

Caveat emptor. Shop around. Although I believe there is some focus being brought to the issue now, title companies make deals with real estate companies, lawyers, banks, etc, for client referrals.

$6500 does seem a bit high, but I live in central OH-IO. It's also been 12 years since I last bought a house. I've refinanced a couple times since, but the title insurance fees were much lower than when I bought the house.

Not sure if this in an option for you but my last refinance 3 years ago was through my credit union. All the refinance fees were much lower than the previous refinance I did with a regular bank.

Good luck with your new house!

edit: had a few extra minutes and decided to google around about title insurance costs. Came across this page (http://www.naic.org/documents/committees_c_cst_wg_reducing_closing_costs.pdf) that seemed pretty informative about title insurance. Learned something there, the difference between a lenders policy and an owners policy. I'm going to have to check which I have.

2nd edit: found another page (http://info.courthousedirect.com/blog/bid/296268/How-Much-Does-Title-Insurance-Cost) posted in 2013 that indicates title insurance is typically 0.5% the purchase price of the property. Are you buying a $1.3M home?

3rd edit: ...not sure why I find this so interesting today... I found a title insurance rate calculator (http://ortratecalculator.oldrepublictitle.com/(S(cqpbsgwwcokbwq10cr525cry)F(LWR5uFGVTiyhJwkuOLh6 ueSZYBn1zM7uXRTxHA_PRbLdJu9tY54YdCq1LVh35rOWLc5heI zOM2od9vJl1NPt5qIxkXRRC9sDdu_dNIR9TyC6fuQkPitJVtMH R7vaNAVEVxUPfOLAMv-gsx2fV5kFhd6D5sxJfwibsG8WzGNiHXA1))/RateCalc.aspx?CallingApp=PUBLIC&Location=29&embed=FALSE&HideState=FALSE&Agent=) on line. Ran my loan through it and an Ohio owners+lenders policy came up to $1800. Was going to run my loan through as New Jersey, but there were so many options offered that I had no way of knowing how to get an apples-apples comparison. Maybe that's why NJ might be so expensive.

[Lance Mirrer]

Hi,

This is often a state by state issue, and you didn't mention the price range of your new mansion. How it works in FL, that amount would cover a very expensive home. Again, FL rules, there is a minimum amount attorneys can charge referred to as the Promulgated rate. Often, there are agents who charge 3x the minimum.
I would call another attorney, and a few title companies to get comparable price quotes fro your sales price.
FYI, look at your policy and be sure you understand what is covered. I had a deal with a bad title. The title insurance refused to pay and took five years in court to get a check from them.
Good Luck!!!!

[Stan Calow]

Your lawyer might be wrong.
ours was less than 1% of purchase price, 0.5% sounds right. We needed to make a claim when a lien from the city showed up. Previous owner (foreclosure) had been cited for not cutting grass and it didn't make it through the process until after we closed on the house. In our county, the lien follows the property so we had to pay. Title insurance covered it.

[Brian Elfert]

I just checked and I paid $891 in title insurance in 2014 on a $250,000 house. This is in Minnesota.

[dennis thompson]

Thanks for the responses.
Based on the price of the house I'm buying the $6,500 seems right

[Daniel O'Neill]

Can I live in your basement then :P
My mom is a title closer. There's a lot of cogs that they put together to make the whole process work for getting you a loan to live in the homes we rent from the bank and/or gov't. It is expensive but as mentioned above it covers a lot of parties involved. The purchaser included. On an interesting note my mom was explaining how Chicago Title got so big. They had all the Cook County records that burned up in the Chicago Fire. As such to rebuild the City of Chicago they kinda had a monopoly for a while.
btw Congrats on the new place