Split Closings: Believe Nothing Of What You Hear And Only Half Of What You See

An article, written by Kathy Orton, recently appeared in the Washington Post entitled, “Split
Closings: A worthwhile convenience or a costly delay?”
This, of course, caught my eye and what I read proved to be riddled with inaccuracies and misunderstandings involving split closings. In this article, I want to dispel these inaccuracies and misunderstandings.

The easiest way to approach this is to separate the statements from this article and address them one at a time. Let’s get right to it.

When a seller chooses to use their own title company, the two title companies are “really performing the same task. You’re just paying for it twice.” This is simply not true. Typically, when a seller chooses to use a title company of their choosing, the buyer’s title company is instructed not to charge the seller any fees other than a standard wire fee and perhaps delivery charges. It is the title company “representing” (this is a loaded word which will be addressed below) the seller that charges the lion share of the fees to the seller. So, the seller is not paying twice.

“Particularly if it’s a more expensive house, it’s a more unusual transaction, the buyer and seller might want their own representation.” “Because when you have one settlement attorney in the middle, they can’t represent either side because they are representing the transaction. They are a neutral party.” In addressing this, I am assuming the individual making this statement assumed the settlement attorney was with a title company and not acting as legal representation. As such, the statement presumes that if a buyer chooses one company and the seller chooses another, they are each getting separate representation because there is not a settlement attorney “in the middle.” This is simply false. The title company that the buyer chooses is the settlement agent on the deal even when the seller chooses another company. The settlement agent must remain neutral because they continue to have responsibilities to all involved in the deal (seller, buyer, lender, etc.). The seller choosing their own company does not change that.

Let’s address this word “representation.” Unless the seller is choosing a law firm, the seller is not really getting representation in the way most understand that word. The seller is simply getting a company to handle their side of the administrative process and have someone (maybe a lawyer or a settlement agent) sit with them at closing to explain documents and notarize their signatures. What’s more, certain Legal Ethics Opinions in Virginia as well as the staff counsel at the Northern Virginia Association of Realtors have suggested that it is not even proper for a title company to “represent” a seller in a real estate transaction. They suggest that if a seller wants their own representation, it must be a law firm or lawyer.

Several statements in the article suggest that sellers may have a relationship with a particular title company. For example, “[m]aybe they refinanced their mortgage with them or used them in the past when buying a home.” While this statement may be completely true, let’s be honest about what is happening the vast majority of the time. Most sellers and buyers don’t know one title company from the next. They rely on their real estate agents to direct them in this regard. So the truth behind split closings is that real estate agents have their favorite, trusted or “go to” companies and prefer to deal with those companies. It is not because a seller is choosing to use their own title company, rather the agent is.

“The title is the title.” “You’re going to get the same title report from the sellers’ side that you are going to get from the buyers’ side.” “It’s going to be the exact same thing. In my opinion, why is a seller paying for that? But there are title companies that are making money off of that.” Again, this demonstrates a basic misunderstanding. Even when a seller chooses their own title company, it is the buyer’s title company who performs the title search and underwrites the title. Additionally, it is the buyer who will bear the cost of the title work as well, not the seller. To say it another way, title work is not pulled twice when a seller chooses their own company.

To be fair and balanced, let me point out some accurate statements from the article: “The public needs to realize the buyer chooses the title company.”

As a settlement agent, “[y]ou are representing the transaction.” You are beholden to any instructions from the lender in a transaction.”

“Convenience is one of the reasons sellers opt to use a separate title company. If they are selling a house and buying a house at the same time, they may prefer to use one company to sign the paperwork for both transactions.”

“Another criticism of split closings is the potential for delay. Because the paperwork has to shuttle from one title company to another, it adds possible complications to the transaction.”

I would also note a section of the article that talks about increased costs for sellers to use their own title company. While I don’t have knowledge of what all title companies charge for seller side only deals, my instinct is this is true. There is not a lot of revenue for a title company in handling only a seller side. Therefore, I speculate that most title companies likely charge more for a seller side only than is otherwise charged to sellers who choose to close with the buyer selected title company.

It is easy to presume that what we read, particularly from a respected publication like the Washington Post, is true. I hope this article proved helpful in clarifying some issues as it relates to split closings. I am not taking a position on whether split closings are good or bad. However, my hope is that when making such choices, correct information is used to make an informed decision.