What Explains Variation in Title Charges?

What Explains Variation in Title Charges?

HUD consistently provides our nation’s consumers with useful information on the costs associated with buying a home. Continuing in this tradition, HUD’s Office of Policy Development and Research recently released a report titled “What Explains Variation in Title Charges?” In the interest of protecting buyers from unnecessarily high charges for the services of settlement agents, underwriters, and attorneys, PD&R contracted with the Urban Institute to investigate variations in title charges across different housing markets. These charges, usually called closing or settlement costs, can be a substantial burden to homebuyers. The charges cover a title search to establish that a seller legally owns the property; preparation of title insurance files; a premium for insurance against title defects; settlement agent or attorney fees; and other related expenses.

This study concentrated on five large metropolitan housing markets: Broward County, Florida; Cook County, Illinois; Maricopa County, Arizona; Philadelphia County, Pennsylvania; and Sacramento, California. These markets differ markedly in terms of demographics, economic conditions, housing stock characteristics, and regulatory environments. The researchers developed a database with which to measure variations in title charges across and within each of the housing markets, and attempted to discover the underlying reasons for these differences. Despite examining a number of characteristics about the buyers, the housing units, the neighborhoods, and the identities of the top title companies, over 50 percent of the variation in total title charges remained unexplained in each of the 5 markets. The unexplained variation might be explained by characteristics of residences, house price differences, foreclosure risk, price discrimination against minorities and less-educated buyers, and settlement agent fees, as well as market segmentation and relationships between real estate and settlement agents. These possibilities suggest that consumers can benefit by shopping, not just for loans but also for settlement services.