3 Questions Every Buyer/Seller of Real Estate should Answer before Signing the Contract

Wed, Sep 18, 2019

Real Estate

Know BEFORE you Buy or Sell… pick the right title/closing agent.

Three Questions (and Answers) for Every Person Buying or Selling a Home in Florida

Title agent – Closing agent- Escrow agent… who are these people and why do I need them to buy or sell my home?  Should I just let my real estate agent handle this selection?  Why should I use an attorney for this role instead of a non-attorney agent?

These are common questions, and many people who buy or sell a home never fully gained answers to these questions, even after they complete their transaction.  However, since buying or selling a home often involves the largest single investment you will ever make, you really should take a few moments to gain answers to these important questions.

Title agent – Closing agent- Escrow agent… Who are these people and why do I need them to buy or sell my home in Florida? 

The terms title agent, closing agent, and escrow agent are often synonymous terms used in a routine residential closing situation, although in more complex transactions these roles can be filled by different people.  For most of us when we buy or sell a Florida home under normal circumstances, we only need one person (or firm) to occupy all these roles, and so these terms are customarily used interchangeably in Florida.  So what do they mean and what do they do? 

A title agent is the agent for the title insurance underwriter who is issuing a policy of title insurance on your transaction.  Title insurance is the policy that protects the parties to ensure that the title to the home is marketable (i.e., clean title free of liens).  The title agent reviews the title history on the property and, in coordination with requirements and conditions imposed by its underwriter, issues the title insurance policy at closing upon satisfaction of all the title requirements.  Title insurance is required if you are using a mortgage loan to obtain your home, but even if you are paying cash, it is still prudent to obtain a title policy to protect your investment.  Your title agent makes that policy happen.

The closing agent conducts the actual closing for the transaction.  This is usually accomplished by orchestrating the flow of money from the buyer and buyer’s lender to the seller, seller’s lender, real estate agents, government (for taxes), attorneys, HOAs, and other numerous vendors, including the title insurance issuer.  The closing agent has to work diligently to determine the amounts owed for loans, taxes, liens, HOAs, etc. and then has to balance the payment of funds and the prorations between all the parties to the transaction.  Since these balances change every day, the numbers have to be calculated based on the precise closing date (this is why it is frustrating for the closing agent when closing dates get pushed around — there is a lot of work that goes into getting the numbers balanced).  The closing agent gathers all the necessary signatures on the closing documents, including the documents for the buyer’s lender, and issues checks and wires funds.  Getting the money right is the #1 priority of the closing agent.  Closing agents work extremely hard at a feverish pace to get the numbers right, but most consumers never see (or fully appreciate) the amount of work going on behind the scenes.  Closing agents have to be extremely well organized and capable of multitasking to do the job properly.

As escrow agent holds money in escrow in accordance with the terms of the real estate contract or escrow agreement.  For most routine closings, the only escrow is the earnest money deposit posted by the buyer at the onset of the contract.  In more complex transactions, there can be a series of escrows for a multitude of purposes, such as repair escrows (money held pending the completion of repair items), title escrows, probate escrows, etc. – the list is long.  Thankfully, for most of us, these are not common, and so the escrow agent usually plays a minor role in routine Florida residential transactions (although in other states, like California, the escrow agent plays a very significant role).  In Florida, a real estate agent can serve as the escrow agent for a deposit, but this is becoming less common.

For most routine transactions, the same person or firm occupies all three roles mainly due to efficiency.  A real estate transaction is already a complex dance of many moving parts, and to add further complication to that process by having separate title, closing, and escrow agents is not ideal.  So we usually combine these roles in Florida and use the terms interchangeably (I personally prefer the term “title/closing agent”), although it is still important to realize that these terms represent different functions (and different responsibilities) related to the transaction. 

Should I just let my real estate agent handle the selection of my title/closing agent? 

Pic the title agent yourself! Don’t rely on your realtor for this task!

No!  The vast majority of the time, the right to select the title/closing agent is vested in the party who is paying for the title insurance.  This can be the buyer or seller, depending on the terms of your contract.  If you are the party paying for the title insurance, then you should exercise prudence and make an informed selection for a title/closing agent.  Picking the right title/closing agent can make an enormous difference in your transaction, reduce headaches, and lead to an overall more acceptable experience.

Most real estate agents are hard-working and dedicated to their occupation, and strive to deliver you quality representation.  However, the real estate agency profession is heavily dependent on contacts and connections… a typical realtor will spend dozens of hours per month networking, conferencing, and attending lunches and seminars.  I cannot blame them… broadening their connections is essential to their success, and prominence in that profession goes hand-in-hand with relationships.  But, for you as the consumer, your agent’s selection of a title/closing agent may not always be the right pick for your interests, and you should assert your interests and make the selection yourself.

Make no mistake, real estate agents are bombarded with marketing efforts on a daily basis from title firms and law firms who want to earn a reliable referral source.  Those title firms and law firms “wine and dine” that agent to the point where the agent automatically selects that firm for title/closing services.  Some firms even go so far as to engage in “joint marketing ventures” with real estate brokers to solidify that referral network (just look at the names of the sponsors at various broker events).  In some cases, the real estate agent might not even ask his or her client about the selection and instead just insert the preferred firm into the contract hoping that the client doesn’t bother to ask about it.  And, frankly, they are successful most of the time because the consumer might not even realize the role of the title/closing agent or understand the process until the contract is already inked.  This is truly a shame.

This is your money and you have the right to the most competent, reliable and responsive title/closing agent possible.  The fees charged by title/closing agent are very similar from firm to firm, but the competency level and quality of service are not.  Instead of ceding this selection to your real estate agent to pick a firm that caters to your agent’s personal interests, you instead should pick a firm that serves your interests.  That means finding a title/closing agent with experienced and responsive staff, excellent online reviews, and one supervised by a highly educated and knowledgeable real estate attorney.

Often a real estate agent will tell you, “In this county, the buyer [or seller] pays for title.”  No!  What may be customary is not law, and there may be instances where you elect to pay for title insurance in order to reserve the right to choose the title/closing agent.  If you cede that selection to the other party, you lose a significant amount of control over the process.  In a situation where you are paying for the title insurance in order to gain the right of selection of the title/closing agent, I often recommend that you have the counterparty pay for the tax on the deed.  You will find that the tax on the deed is an expense that approximately matches the cost of the title insurance, so they have the effect of (roughly) canceling each other out.

For new construction, particularly new condominium construction, it is absolutely critical that you negotiate the right to pick the title/closing agent before you sign the purchase agreement.  In these instances, the closing date can often be many months if not several years out, and you will want to control the title/closing by selecting your own agent.  The developer will aggressively resist this effort, but I encourage you to stand your ground.  Be careful, since with new construction contracts, the developer will try to force you to pay for the title insurance AND insist on using their title/closing agent.  Because the deposits for new construction are often quite significant compared to existing homes, the developer will use your large deposit as a threat against you if something goes amiss during the construction process and/or should you develop cold feet.  For instance, if the new condo is taking longer to build than originally advertised, the developer will not hesitate to threaten to seize your hefty deposit should you express a desire to pull out of the deal.  At that point in time, you would be much better off to have your own title/closing agent holding your deposit than the developer’s agent (who is usually their golf buddy or friend).

Why should I use an attorney for this role instead of a non-attorney title agent?

For the sake of accountability, use an attorney as your title/closing agent.

Accountability.  To be a real estate attorney, someone has to first receive a four-year college degree, then obtain a law school degree, then pass a rigorous bar exam, pass an ethics exam, and also pass a thorough background investigation for character and fitness.  Attorneys have to take continuing education classes to maintain their license.  In the event an attorney runs astray of the rules, the Florida Bar (the agency regulating attorneys) will not hesitate to sanction or even strip the attorney of his or her license.  This consequence of losing a license that an attorney spent a decade to acquire is nothing short of calamitous.  Also, real estate attorneys universally maintain high levels of professional liability insurance to protect their clients and underwriters.   This level of accountability serves to keep the vast majority of real estate attorneys in line.  You will want someone accountable if you are entrusting them with the vast sums of money used to buy a home or the proceeds from the sale of your home.  You will also want an expert on the law to review your title and advise you on applicable law.

In Florida, a non-attorney can serve as a title agent if they take a 40-hour class, get fingerprinted, and pass a 90-minute test.  There are many experienced non-attorney title agents in Florida, and I have had the pleasure of interacting with numerous non-attorney agents who are both competent and trustworthy.  But how do you, as a consumer, know that in advance?  You rarely would know, and so you should not take the chance.  Since the cost of using an attorney for the title/closing agent is not materially different than using a non-attorney, you would be prudent to select the most accountable person for the job.

Further, there are other reasons to use an attorney as your title/closing agent.  What if issues arise in your closing outside the normal scope of services offered by a non-attorney title/closing agent, such as contract breaches, contract amendments, seller financing, tax issues, judgment or probate issues, or complex escrow arrangements?  Your non-attorney agent is going to tell you to call an attorney if that happens.  If you already have your attorney handling the closing, then rarely would you have to look any further for additional representation.

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