Imagine a realistic scenario that plays out every day in Texas:
You go to closing on your new house, filled with excitement about the largest purchase you have ever made. You see the cost for title insurance, and you ask your real estate agent if you can shop around.
They tell you absolutely, if you don’t want to pay $2,663 on title insurance for your new $300,000 house, you can go to Company B where they will only charge you $2,663.
If you don’t like their price, try Company C, because they offer a cut-rate deal of $2,663.
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If this scenario sounds like a farce, just know this is what the title insurance industry calls competition in Texas.
The state sets the rate, and the companies can’t deviate from that rate.
They can offer different services. But no matter what, they all charge you the same.
The rest of the story is the most important part: Texas has some of the highest title insurance rates in the country.
The reason is obvious: whenever government fixes the price, private industry doesn’t have to squeeze out efficiencies to compete.
The spoils get divided. Everyone pays more.
And in Texas, everyone does pay more, from the poor and middle class, to those who do multimillion-dollar commercial deals.
We happened upon this pocket of anti-competitive business practices when one of us purchased a Texas property and noticed exorbitant title insurance costs.
We had title costs pulled for properties purchased in other states.
Time and again, Texas was out of line and more expensive.
We did more research and found Texas is one of only three states that doesn’t allow market competition in title insurance.
We wondered why.
Auto insurers compete on rate. Home insurers compete on rate. Why not title insurance?
It’s hard to get an answer to that question. In fact, the title industry has yet to offer a good reason why they can’t compete on rate.
They have only sought to prove their prices are competitive compared to other states.
The problem is, the little bit of data they have released on their prices can’t be independently verified or reproduced by third parties.
It’s a “trust but don’t verify” approach to data.
We don’t trust it, or their 34 lobbyists touting it.
We have both made a lot of friends in the title industry as we have closed commercial and residential transactions over the last few decades.
They are good people, and we don’t blame them for fighting to protect their state-mandated oligopoly, or for hiring a horde of lobbyists to protect the last bastion of anti-competitive rate practices in the insurance market in Texas.
We just think it is time to let the free enterprise system work.
We serve on the board of Texans for Free Enterprise, and we recently commissioned a nationwide study on the industry by the LBJ School at the University of Texas at Austin.
The data are available online, and anyone is free to look at the underlying assumptions.
The study’s author, David Eaton, says Texans pay anywhere from $292 to $1,663 more on properties valued at $1 million or less.
So it goes to reason, if we make title insurance compete on price, poor and middle class Texans would save hundreds of dollars on title insurance if the state got out of the business of setting rates.
State Sen. Kelly Hancock, R-North Richland Hills, would make title insurance practices more transparent with legislation, SB 2203.
The bill would require that all settlement and closing statements include an accurate statement of the insurance premium, the amount paid to third parties and an itemization of fees and charges paid to the settlement agent.
For many families trying to make ends meet in the most anemic recovery since the Great Depression, a few hundred dollars or more makes a great difference.
Why should Texans be subject to exorbitant fees that are higher than what residents pay in states like California?
If even California knows it makes sense to compete on rate, why shouldn’t Texas?
We’re not asking Texas to try an untested experiment here, just to be the 48th state to bring free market forces to the purchase of title insurance.
It’s like a property tax cut for new home purchasers, only the appraiser can’t take it away.
If the middle class is going to get ahead, they need every advantage they can get. It’s time to act on title insurance reform in Texas.
Doug Deason is president of the Deason Foundation, and Bob Rowling is CEO of TRT Holdings Inc. Both are from Dallas.