The Cost of Selling Your House: Title Insurance
What is “title insurance” and why is it necessary in a real estate transaction? Oh my, I could fill a football stadium with the things I don’t know about title insurance. In fact, there is a HUGE industry involved in insuring real property. Although this post is concerned with the cost of title insurance, it’s important for you to grasp a few basics:
TITLE INSURANCE
Title insurance is indemnity insurance that protects a property owner against financial loss from problems connected to his/her property. Think about title insurance this way:
Before you purchased your home, it may have gone through several ownership changes. The land on which it stands probably went through many more. In the course of your property’s history all sorts of things might have happened: banks or individuals may have put liens on the title; there may be easements for access; or someone may have leased a portion of the property. Someone may have forged a signature transferring title! All sorts of things can “cloud” a title. Then there’s the neighbor who erected a fence on the property that “encroached” onto your land. If all this seems complicated, it is! That’s why title to a property must be “marketable” for both the owner and lenders. TITLE INSURANCE IS INSURANCE AGAINST THINGS THAT HAPPENED IN THE PAST!
In Washington State it is customary for the seller to pay for an owner’s policy as part of their obligation to deliver good (marketable) title to the buyer. So the policy works like this: A standard title policy only protects against losses arising from events that occurred prior to the date of the policy. coverage ends on the day the policy is issued and extends backward in time for an indefinite period.
STANDARD VS ALTA POLICIES
As with all insurance coverage, you can purchase a basic policy which covers a minimum number of title issues; however, what if someone files false claims against your your property after you purchase it (e.g. a neighbor could build on your land without your knowledge, or identity theft could happen an result in a new mortgage you know noting about. You may suddenly be told that you must correct a zoning violation of the previous owner. To handle these sorts of issues, it is common to issue the ALTA home owner’s policy. All title companies offer this “enhanced” policy and the cost is, on average, about 10% higher than a standard policy. It’s the best 10% you’ll ever spend on an insurance policy.
Julie Satko, my good friend and Title Expert at First American Title, provided me with a downloadable PDF that shows the number of possible issues addressed by their “Eagle” plan (ALTA).
Keep in mind that most Title Insurance companies have similar plans with different names. PLEASE NOTE: AS WITH ANY PRODUCT, SHOP AROUND FOR THE TITLE INSURANCE COMPANY AND POLICY THAT FITS YOUR NEEDS.
OK, HOW MUCH DOES IT COST?
All Title Insurance companies provide price quotes and many post these rates on their websites. Basically the more expensive the home, the higher the premium. I did find a convenient rate calculatorh on Rainier Title’s website that you can use to play around with property values.
In my previous posts regarding the Cost of Selling Your House, we considered:
Today, we are going to add in the cost of Title Insurance. Remember, we were calculating the costs based on a $350,000 sale price. Here’s what we come up with:
Excise tax = $350,000 sale price X 1.78% = $6,230
Escrow = $1000 divided by buyer and seller = $500
Title Insurance = $905
TOTAL = $7635
In part 4 of this series, I will be covering the interesting subject of how much you must spend to market your home correctly in this current market. As a Realtor®, I’ve had a lot of experience with this aspect of marketing a home.
James is a skilled and knowledgeable Associate Broker & Realtor with Keller Williams. Whether he’s selling an existing home or helping clients find their dream home, he provides quality real estate services in residential properties and relocations.
James and his wife Virgina have lived in Seattle since 1986 and bought their first home, a 1940’s project, in 1989. James is passionate about the Pacific Northwest and is dedicated to helping others find their home here.
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