By David Parker, Esq.
QUESTION: Recently, I have seen a number of advertisements from settlement companies offering discounts and free giveaways if you use them for settlement. How do I know if the fees being charged are fair and what do you think about a settlement company giving away a free TV if I use them for my settlement?
ANSWER: We have all heard the expression, “there is no such thing as a free lunch.” You can be certain that in any business offer, if something is being offered for free, or being given away, someone, somewhere is going to be paying for the cost of the giveaway. That old adage certainly holds true for settlement fees, as well. I, too, have noticed a proliferation of the almost too good to be true offers that are suddenly appearing in the real estate magazines, newspapers and advertisements.
With the current slowdown in the real estate market, many companies are desperately searching for a way to attract customers. Apparently, giving away items is the latest gimmick to attract new business. I did some investigating and actually found the advertisement for a company that is offering a free TV if you settle with them. Thanks to the Internet , I was able to quickly locate similar 20” flat screen TV’s and found that one could be purchased for around $130. Then I studied the advertisement and found the fine print.
This particular company stated that the TV could be had for free if the purchase price exceeded $750,000 and the buyer obtained full owner and lenders title insurance. Here is the part that most people don’t know. The settlement attorney, as an agent of the title insurance company, receives a commission from the title insurance premium. Therefore, on a house exceeding $750,000, the settlement attorney will receive a large portion of the $2,735 premium. However, there is a method for the buyer to obtain a rather substantial reduction in the premium that is not discussed in the advertisement.
In our example, if the previous owner provides a copy of their title insurance policy to the settlement company, then the new buyer will get a Re-issue Rate or discount on the title insurance between $400 and $900. So what is the catch in the advertisement? In order to get the “free” $130 TV, the buyer must give up any claim to the $400-$900 discount that is otherwise available. I wonder if buyers are told that they are trading a $900 discount on title insurance for a $130 TV. To that offer, I say, “NO DEAL!” Also, and perhaps more important, one wonders if a buyer really wants to work with a company that is baiting them in with a so-called “free TV” when, as is somewhat obvious, the TV is anything but free.
When shopping for a settlement attorney to conduct your settlement, you should, of course, look at all of the fees being charged. You should ask for a fee quote in writing. You should ask questions about every fee and inquire whether the fees are being marked up, or will you be paying the actual cost of the item. For example, if a title abstract is ordered from the courthouse, will you pay the actual cost of the report or a higher price which includes some extra “profit” for the settlement company? You should ask if you are entitled to the Re-issue Rate discount on the title insurance. And most important, you should be suspicious of any free giveaways.
The most important things to consider are the level of professionalism of the company, whether they fully disclose all of their fees in writing, are the fees fair and reasonable, do they voluntarily disclose the Re-issue Rate discount and are the settlements conducted by experienced attorneys. Perhaps Abraham Lincoln, our 16th President said it best: “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.” Do no let yourself be one of those who get fooled by a tempting, but silly free gift designed to get your business.