RESPA reforms golden opportunity for title agents to ramp up direct-to-consumer marketing efforts
There's been a push to improve consumers’ ability to shop for title services and encourage price competition since about April 2007, when the U.S. Government Accountability Office released its Report on Title Insurance.
More recently, the RESPA reforms of 2010 were intended to lend more transparency to consumers for easier price comparison among settlement service providers.
These regulatory efforts have laid the foundation for creating more consumer-awareness and, as a result, have provided a golden opportunity for settlement service providers to focus more resources on direct-to-consumer marketing efforts.
It will be up to the independent title agent to seize this opportunity. Unfortunately, for the consumer, most settlement service providers (or title agents) are not independent.
According to a 2009 study, 77 percent of consumers allowed their real estate agent or mortgage lender to select a title company for them despite the consumers' legal right to choose their own settlement service provider.
This remarkable statistic is largely due to the fact that the consumer’s "trusted advisor" (i.e., real estate company and/or mortgage company) most often refers the consumer, through an Affiliated Business Arrangement (ABA), to an affiliated title agent in exchange for the "legal" kickback.
The vast majority of title agents participate in ABAs and, by extension, so too do their respective title insurance underwriters; leaving little reason or incentive for the title agent or title insurance underwriter to compete on price or market directly to the consumers.
In my view, these "legal" kickback arrangements are the primary reason why the title industry, as a whole, has remained uncompetitive.
ABAs were first sanctioned by the Department of Housing and Urban Development (HUD) in 1992; before the Internet revolution enabled title service providers to cost-effectively market directly to the consumer.
Today, with 87 percent of homebuyers using the Internet to home search, together with, the recent pro-consumer governmental reforms, independent title service providers are presented with a tremendous opportunity to reach consumers.
In contrast to the affiliated title providers, independent providers can make a compelling case to the consumer in two ways:
1) No divided loyalties or potential conflicts of interest; and
2) More competitive pricing since they don’t share their profits with referral sources.
Federal Title & Escrow Company, an independent Washington, DC-based provider, began harnessing the power of the Internet with a direct-to-consumer approach in 2001.
The effort focused on distinguishing Federal Title as an independent provider unwilling to share its profits with referral sources and, instead, sharing its profits with the consumer; a value proposition known as the REAL Credit™.
Federal Title’s marketing efforts have focused heavily on increasing organic search engine results, making it easier for the average shopper to find information about our company and title services we provide. This includes maintaining a robust blog and active social media campaign on Facebook and Twitter from which to disseminate our message. Our website features customized user-friendly tools for obtaining GFE quotes and ordering title services online.
More and more, consumers are becoming aware of their right to choose their own title company and are ever more likely to self-manage most of their transaction.
Prior to 2001, nearly 97 percent of Federal Title’s referrals were borne through real estate agent and mortgage lender relationships. Today, with Federal Title’s technology-driven marketing effort, the number has dropped to about 80 percent and continues to trend downward. Approximately 20 percent of Federal Title’s current referrals are organic, originating from an Internet search by the consumer (i.e., homebuyer or refinancing homeowner).
There's a hard push with the RESPA reforms toward what we've been doing all along, which is full disclosure.
- Tags: Affiliated Business Arrangement | Closing Costs | Homebuying | Real Credit™ | RESPA | Technology