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Title Industry Disrupters Podcast Blog


Introduction

The Podcast with Mary Schuster- SVP, Industry Relations at RamQuest that inspired my blog series will “drop” today. I have officially joined in with Social Media in the year 2021…one of my greatest personal accomplishments to date!


Below is a link to the podcast, along with the Session Description, Podcast Research, Background Notes and Lessons Learned of our discussion. I hope you enjoy!


Link

RamQuest.com/podcast


Title/Description

Podcast Mary & Tish Bush: It’s All About Disruptors

In this episode, Tish Bush, Principal at TBD Advisors, shares her unique perspective on the disruption and the disruptors that have recently emerged in real estate. Mary and Tish look at what makes this industry so attractive to disruptors and then they dive into the good, the bad and the ugly. What do disruptors bring to the table? What issues face the disruptors? And what challenges are we seeing in our industry because of this disruption? Don’t miss this candid discussion as Mary and Tish take a closer look at these entities working so diligently to become the Uber or Amazon of title and settlement.


Disclaimer: The material and information contained in this Blog is for general informational purposes only. You should not rely upon the material or information as a basis for making any business, legal or any other decisions.


Podcast Research, Background Notes and Lessons Learned


Title Insurance Industry Attraction to Disrupters

  • Estimated to be a $14 billion industry.

  • Title Insurance is insurance that protects against claims to home ownership should they arise after the sale/purchase.

  • When buying a home, title insurance companies research the property’s history, contained in public records, to make sure no claims are attached to it, then correct any issues before granting a title insurance policy.

  • Cost for title insurance is linked to the home’s value, as opposed to other traditional types of insurance that are priced according to the risk of a claim.

  • On average, a title policy will cost roughly 0.5%-1% of the home purchase price.

  • Title insurers pay an estimated 3%-4% of their premium dollars on claims as compared to home and car insurance companies which can pay upward of 80%.

  • The underwriting process overall as an industry is thought to be inefficient.

  • In explanation, a house that has been bought and sold several times— and has had its title vetted each time — historically undergoes the same review process the first time as it does every time thereafter.

  • The top five title underwriters dominating the U.S. market earn large profits.

  • It has been estimated that they control over 85% of the market.

  • Disrupters have publicly vocalized that these large companies have the resources to adopt technology that would streamline the process but choose not to in order to retain profits.

  • The title industry is perceived to be an oligopoly; which is why the disrupters see an opportunity for change.

  • Many disrupters entering the market are highly successful former tech industry individuals, interested in bringing technological efficiencies.


Disrupter: Enablement

  • Companies developing technology designed to integrate with existing real estate businesses

  • Companies enabling the title agent by offering technology for workflow management (Qualia).

  • Companies enabling the realtor by allowing realtors to offer title insurance through JVs/Partnerships (Modus).

  • Companies enabling the underwriter by offering underwriters a technology-forward solution that allows them to remain competitive in a quickly evolving market (Endpoint).


Disrupter: Disruption

  • Companies displacing real estate businesses altogether

  • Virtual insurance companies such as Doma (previously States Title), which are reinventing the underwriting process.

  • Virtual title agencies such as Jet Closing, offers an efficient, tech-driven title/closing experience.

  • Integrated residential brokerage platforms such as Flyhomes, Knock and Orchard that are building end-to-end platforms.

  • These integrated platforms generate revenue by rolling secondary offerings such as title insurance into the sale process.

  • Once deciding to expand into title, these brokerages can decide whether to leverage a “title agency in a box” offering such as Spruce or to build the capability in-house.


A Few of the Companies Disrupting and Enabling the Real Estate Industry

  • Realtor.com: launched in 1996 to the public, disempowering Real Estate agents and the MLS system, enabling homebuyers to search for their own homes, and negotiate away the 6% commission.

  • I -Buyer’s first company was We Buy Ugly Houses: launched in 1996. Cash offer to seller, no listing, no showings, no repairs. Company then updates property as needed, markets and sells. (Similar to corporate relocation buyout model.)

  • Open Door: 2014

  • Offerpad: 2015

  • Redfin: 2017

  • Zillow Offers: 2018

  • Realty One: Established in 2005. Differentiates itself from traditional brokerages with its fee model, which replaces the agent/broker split with a flat transaction fee that enables agents to keep 100 percent of their commissions. Further moving the industry away from the once traditional 6% commission

  • Zillow: Founded in 2006 by two former Microsoft Executives. An online real estate marketplace company. Represents itself as a media company that generates revenue by selling advertising on its web site.

  • HomeLight: Launched in 2012. Using data and algorithms to find the best performing agents in a market. Lessened the Realtor Referrals in which a Realtor gets a percentage of the commission to send business to another agent.

  • Flyhomes: Launched in 2016. Helps clients purchase houses directly with cash. Buyers secure a short-term loan from Flyhomes, which provides the cash until its clients finalize their mortgage.

  • Knock: Launched in 2017. Company guarantees that it will competitively price and sell your home in six weeks or less using a home pricing algorithm, neighborhood analysis and a proprietary 200-point on-site inspection to ensure homes are priced right the first time. Charges the traditional 6% fee. Also offers products “Home Swap”- buy before selling and “Knock Nest”- sell and rent back.

  • Orchard (formerly known as Perch): launched in 2017. Makes a 90 day offer on existing home enabling seller to buy a new home non-contingent. Compensates its realtors via salary and benefits as opposed to the usual commission framework.

  • Pacasso: Launched in 2020 by Former Zillow CEO Spencer Rascoff and dotloop founder Austin Allison. Partners with real estate agents to find homes for customers and helps set up an LLC designed for co-ownership. The buyers pay for their share, anywhere from one-eighth to half, and Pacasso pays for the rest, eventually selling the other “shares” to additional owners. It then serves as the owner representative on behalf of the group, handling various logistics such as maintenance, financing, legal, etc. Its platform also lets owners with scheduling and booking. Pacasso charges owners a 10% fee at the time of purchase, and an annual property management fee equal to 1% of the purchase price. (Note that after the Podcast was recorded ALTA’s News You Can Use on July 1st had an article on Pacasso- Mary and I were ahead of our time!)


A Few of the Companies that have entered the Title Insurance Industry for Possible Enablement and Disruption

  • Blend: launched in 2012 as a digital lending software provider offering a configurable platform for mortgages, consumer loans and deposit accounts as well as an end-to-end digital mortgage solution where consumers can complete the full home finance process, including insurance and closing, in one place. Purchased Title365 in 2021.

  • House Canary: launched in 2013. A provider of software and analytics for the real estate industry that specializes in valuations and appraisals. Automating home valuations replaces a two- to three-week human appraisal process with instant, actionable valuations at a fraction of the price

  • Qualia: launched in 2015. Offers an end-to-end platform that connects all parties involved in a real estate transaction, so title agents can manage and coordinate all aspects of the process in real time. Purchased Adeptive Software, the developer of ResWare, in 2020

  • Spruce: founded in 2016. Digitizing the paperwork that must be completed during a real estate transaction, including handling title, ensuring all closing docs are completed, and monitoring compliance in every geographical jurisdiction by creating a system between buyers, sellers, lenders, and all other services required to get a transaction closed.

  • Doma (formerly States Title): founded in 2016. Uses a predictive underwriting engine that produces nearly instantaneous title assessment, reducing the cost and time required to issue a policy. Purchased North American in 2019 to expand geographic regions and customer book.

  • JetClosing: launched in 2016. Digitizes the home closing process for buyers, sellers, and realtors, removing paper forms and bringing everything to the cloud. Charges a flat escrow fee to both sides for each transaction and makes additional revenue on issuing owners and lenders title insurance policies.

  • Modus: launched in 2018. Company vision is to become the operating system that empowers and serves all parties involved in real estate transactions. Goal is to empower real estate agents and their clients, while other companies are now shifting their focus away from real estate agents to purely serving the consumer.

  • Endpoint: launched in 2018 by First American as a digital title and escrow company.

  • Tempo Title: launched in 2020 by a group of experienced and highly successful entrepreneurs. States their mission is to “…combine the industry’s leading independent title agencies the most efficient, professional, compliant and comprehensive commercial and residential title insurance and settlement services.” Purchased Diversified National Title Agency, Closetrak, Assured Title, Reli Title and Elevation Title in 2020. Purchased Foundation Title in 2021.


Lessons to be Learned- High Level Management

  1. Stay informed about changes taking place in your state(s)- legislation and competition.

  2. Keep a close eye on remote notarizations and remote closings available in your state.

  3. Lenders may dictate and create changes- keep an eye on which lenders are your highest by volume and the total population of lenders using your services.

  4. Create a library of each lender’s requirements, starting with the highest by volume.

  5. Look at your top 3 to 5 direct competitors and what technology and vendors are they using.

  6. Consider the changes from both types of Disrupters an opportunity to embrace making things more efficient and more compliant…welcome the change! Make your company better through the offerings from the Disruptors.


Lessons to be Learned- Front Line

  1. Create a top 5 list of things to work on…not a top 50 list.

  2. Focus on the things that may have been put on hold in 2020 such as compliance items and policy and procedure documentation. This may come back around quickly for review with lenders, compliance agencies, underwriters and government agencies.

  3. Remember your employees while all this disruption has been taking place- they have worked tirelessly through extremely high volumes and a pandemic! Be mindful of initiatives that will further drain employees.

  4. Review vendor contracts to ensure they remain the best offerings.

  5. Review department and branch level P&L’s to ensure all controllable expenses are acceptable:

  6. Overnight mail charges may have increased with the pandemic, can these costs be passed through, costs reduced (two-day delivery, non-early am delivery option, regular mail, etc.).

  7. Overtime for staff. How is remote work being monitored and managed to confirm hours? Is overtime still needed?

  8. Company fees review. Check data to compare the expected fee per file to the collected fee. Audit a sampling of files to ensure acceptability. Compliance with this may have slipped in the craziness of 2020.


Disclaimer: The material and information contained in this Blog is for general informational purposes only. You should not rely upon the material or information as a basis for making any business, legal or any other decisions.



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