Sawbuck Realty’s website states that the company is managed by it’s founders: Steve Barnes and Guy Wolcott.  Guy Wolcott commented on Title-opoly last night after a lively day of readers’ remarks about his company’s unusual business model.  It turns out that Barnes and Wolcott own a mortgage company, but direct orders to a national lender that can offer a broad range of benefits to consumers.   It appears that I was incorrect when assuming that Sawbuck is a lead generator for an affiliated mortgage company.   In his comment, Wolcott was emphatic about avoiding any appearance of impropriety.

Sawbuck is in the business of earning commission referrals by providing qualified buyers (leads) to a network of trusted real estate agents. 

Sawbuck recommends local title companies that share a vision of creating new opportunities for consumers demanding transparency.

Networked business derived from shared values among services providers isn’t the same thing as affiliated business even though the model is dependent upon directed orders.  The difference lies in the fact that consumers knowingly make choices.  Many of you were concerned that Sawbuck’s preferred title companies were undercharging for their services.  The model is geo-specific and works due to a combination of high property values and favorable title insurance premiums in the DC, VA, MD area.  The concept may not work in your specific market.

I stand firm in my resolve to expose title agents to the ingenious, and compliant, models that are starting to appear.  It’s my strong opinion that the title company of tomorrow will depend wholly on internet models that cast a wide net to produce local customers with highly defined opinions concerning settlement service providers.  Enter generation “x” and generation “y” as the baby boomers lose their dominance as the industry’s primary source of business.

Guy Wolcott’s comment on Title-opoly:

Ed, thanks for your thoughts on our new venture. It is always interesting to hear how people from each industry we touch (real estate, mortgage, title, technology) feel about what we are doing.

To be clear, even though the founders also own a mortgage company, Sawbuck does not refer business to it (both to enable us to scale up, and to avoid any misperceptions about how we make money). Instead, we partered with a national lender and work with their local retail operation. For our buyers, we’ve negotiated a below-market rate with no closing costs. In fact, we subsidize every loan (the opposite of making money).

On the settlement side, we work with local title companies who agree to our “rules” — no fees, no markups, default to standard coverage. We have no ownership interest in any title company, and have no ABAs. But since no one is used to a real estate company negotiating FOR the buyer, it takes a while for what we are doing to sink in.

Sawbuck ONLY makes money from real estate. After working with them during the early “search” phase, we refer our buyers to top local agents/teams we have identified in each community. We don’t charge agents to be our partner, and don’t charge for “leads”. We get paid our referral fee only when a qualified buyer meets a good agent and successfully buys a house. (Then we take a significant portion of that fee and plow it back into the mortgage subsidy.)

Our idea is that commissions are big enough to support a variety of benefits to buyers. Our goal is to turn the molehill of our referral fee into a mountain of savings for the buyer.

 

There was a time when all title companies in Baltimore charged identical fees.  An equation was used that involved a percentage of a property’s selling price reduced by the published rate for the lender’s title policy.  An equally senseless approach was used for refinances.  It was a stunningly stupid practice that reflected a perception that title companies provide identical services.

The pricing model that emerged during the mid 1980’s and still employed today is a lasting monument to the title industry’s innate fear of real estate agents and loan originators:

The title company of tomorrow will understand that its products must reflect the tastes and personalities of its customers.  The time has come to tear down the old to begin building the new. It’s ridiculous to think that consumers aren’t going to search online for title companies.  That might be said of Baby Boomers, but it’s certainly not true of Gen X and Gen Y. 

You don’t sell title insurance, you sell trust in the form of an almost ritualistic experience.  You sell credibility in the form of homeownership without risk of litigation.  Price isn’t the primary factor when something as fundamental as homeownership is concerned.  The big players can’t seem to grasp this fact and never will because they don’t know who their customer is.  Real estate agents and loan officers “push” the price/convenience mix because it sounds good and requires little explanation.

Reinvent yourselves, but build from the ground up this time.  The inverted institution that is the title industry worships the middle man at the expense of the consumer.  The consumer is your customer.  The informed consumer will gravitate towards an exceptional title company that “gets it.”   Consumers are willing to pay more if they understand that a product is superior.  But, it’s up to you and you alone to tell them.   It’s not about your price, it’s about you.  

Are you starting to “get it” now? 

Related posts:

• Price Point
• How do you Price Your Product?
• Pricing your Product Revisited
  

Pricing happens to be one of my pet peeves with the title industry. You’re probably thinking that I’m a proponent of global price reduction for the benefit of consumers. I’m not, nor do I believe that fair competition among title companies should be based on price alone. Stellar performance with increased fees is a better option for title agents, and consumers, than mediocrity (recklessness) at bargain prices. Honest title agents aren’t earning enough income to justify their daily stress levels and workloads before risk assumption is even brought into the equation. Be honest and compare yourself to friends from your school years that pursued different careers. They’ve done better than you have financially while enjoying a better quality of life and a lot more time away from their offices. The disparity is caused in large part by the industry’s unique and generally accepted approach to pricing. Title agents complacently accept an unrealistically low price point determined by realtors and loan officers who in turn charge grossly inflated fees.

Robert Franco, Source of Title Blog, summed it up well:

So, how did you get here? And, where are you going? Its always interesting to learn what it was that attracted people to the title industry. Most of those I have spoken to have just fallen into the profession. I haven’t yet heard “I always wanted to be a title examiner.”

If the title industry hopes to survive, it needs to offer career choices and pay scales that appeal to the best and brightest minds.

It “ain’t” cheap or easy to manage an exemplary title company with a trained and professional staff. Think in terms of a remarkable corporate culture that rewards customer (consumer) satisfaction, personal accountability and responsible escrow management. Technology has become a dangerous crutch for the title industry. Prepackaged software packages effectively mask the ineptness and lack of practical experience of otherwise well intended title agents. Regulatory agencies assume that technology has produced a linearly diminished cost structure. It’s a fallacy because of the industry’s distinct dependency upon professional skill and judgment. Title agents have to stop guaranteeing prices before assessing the difficulty, directly related costs and labor intensiveness of any given file. It’s a ridiculous tradition derived from a fear of losing business rather than sound business practices. The price point argument is a by-product of perception more than anything else. The educated (enlightened) consumer would understand the necessity of paying increased fees to title agents for legitimate services that are properly explained.

As a title agent, have you ever tried to calculate the number of deals that you need to close each month to cover expenses? It should be a simple matter to construct a break-even model. But, it’s not!

The theoretical equation:

Break-even point in units (transactions) = Fixed Operating Costs/(Fees per transaction - variable costs per transaction)

Fees per transaction should include title insurance commissions based on average selling price.

The problematic factor for title agents is determining variable costs. You simply are unable to predict the amount of time that you will spend on any file. The real estate industry embraces a doctrine that requires you to make as much as possible on easy files to compensate for the losses on difficult files. Since the file selection process is random, the percentage of profitable transactions is a gamble at best. Realtors overcome this challenge by charging a percentage of selling price. Each listing or sale is essentially a “cash cow.” But, the title agent is “screwed.”

Why ?:

• Profit margins, in 2007, aren’t nearly high enough for the title industry to safely pursue a “hope for the best” policy that’s never made sense
• The files with the least profit normally contain the most legal and underwriting risk
• Title agents are unable to appropriately charge more for difficult files because realtors and loan officers won’t allow it

To add to the problem, state regulators appear interested in lowering and capping title insurance premiums which will further contribute to the financial woes of title agents.

So, how did you get here and where are you going? More importantly, why don’t you charge enough for each transaction to make it worth your time, effort and risk?

See: How do you Price Your Product?

The pricing model currently employed by the title industry regardless of cost structure:

Price determined by third parties – Costs = Profits

Suggestion: Establish a written pricing policy for your company thats strictly enforced.   Include a breakdown of any discounts intended for employees, family, realtors or lenders.  Identical fees should be charged for identical services in every file.

Fact: Because the title industry tolerates a price point thats determined by factors other than free market forces; most title agents who provide superior services earn less income than they deserve.  In other words, your talent exceeds your income due to peculiarities in the accepted practices of your chosen profession.

What factors, internal and external, do you consider when pricing your product?

Do you charge more for titles or closings that require additional time, effort, expertise or costs to you?

Have you raised you prices to reflect higher gas prices?

Do you charge more for evening closings or weekend closings?

 

You’re not charging enough for your product if:

• You don’t receive complaints about your prices
• Phone calls, faxes and e-mail are perceived in your office as something negative
• Lenders are constantly requesting final policies or endorsements
• You’re often asked to pull back files because releases are not recorded
• Your files contain insufficient documentation or notation

 

Products, in general, are priced based on the interaction between a number of factors including:

• Product Image ( the perceived value of the product by the consumer );
• Price point established by competing products;
• Supply and demand;
• Internal cost structure based on fixed and variable cost structure.
  

Title agents typically charge a price that is tolerated by the source of business. You hope to make money on easy files to offset the losses suffered on more difficult files.  A chaotic business model like the one thats presently accepted by title agents cannot survice much longer.

Related post: Pricing your Product Revisited