Most homebuyers know by now that it’s their legal right to choose their own title company and that shopping for title services is one of the most effective ways to reduce costs at the closing table.
(For those who haven’t heard this, read our content on Marketing Service Agreements and Affiliated Business Arrangements and see for yourself how these common deals jack up closing costs for consumers.)
But what happens if a homebuyer doesn’t learn about this important right until after her sales contract has been drafted, accepted and signed by all parties? And is it possible to change title companies once a title company has been designated in the contract and an earnest money deposit has been delivered to that designated title company?
The short answer is you can change your mind with the consent of the seller, through a simple addendum to the sales contract. View our a settlement agent-change sample addendum.
Once the addendum is completed and signed by all parties, the homebuyer can then use the new title company listed on the addendum.
Even if the earnest money deposit was already delivered, with the addendum in place, the new title company would simply reach out to the old title company holding the funds and arrange for a wire transfer. That’s it!
How might a homebuyer find herself in a situation where she wishes to change her company after all parties have signed a sales contract with a designated and undesired title company?
First and foremost, we encourage every homebuyer to get closing cost quotes from several local title companies and compare costs and online reputations to avoid this situation. We also remind homebuyers that title companies don’t necessarily include all the same services in their settlement fee. Sometimes additional services, i.e., document fees, processing fees, amount to hidden costs, so it’s important to ask what services are included and what extra costs may be charged.
And while it’s technically illegal for real estate agents to fill in the name of a preferred title company if their brokerage has a professional affiliation with that title company, the practice persists. In these cases, homebuyers may not realize until after they have a ratified sales contract that they could have chosen their own title company.
It’s important to ask your agent if his company has a professional affiliation with the title company he’s listed in your sales contract and what benefits or incentives the real estate agent or brokerage may be receiving by recommending that title company. Sometimes the answer is there is no affiliation; the agent is familiar with a certain company and recommends that company from the perspective of good service and pricing.
There’s nothing inherently wrong with an agent directing their client to use their favorite title company, except that it may lead a homebuyer to falsely believe she does not have a choice, or once a title company’s name is written into the contract and that contract is ratified, the decision is set in stone and the title company can’t be changed.
A homebuyer maintains a right to choose her own title company and also has the right to change her mind and choose a different title company.
This isn’t an invitation to change title companies several times prior to closing or to change for no good reason. Keep in mind any addendum to a ratified sales contract must be signed by all parties, including the sellers. You may risk delaying closing, annoying your sellers or even causing your deal to fall through by abusing your right to change title companies after you have a ratified sales contract.
We put this post together specifically to help those who learned after the fact they could have chosen their own title company and would like to exercise that right. Two primary reasons a homebuyer may choose to change title companies might be she’s found a title company that charges lower prices and/or provides better customer service than the company initially listed on the sales contract.