When buying real estate, your real estate agent will provide you with countless forms to fill out on or before closing day. The sheer amount of paperwork can be overwhelming, especially for first-time buyers. That’s why it can be easy to miss one particular form required by the Real Estate Settlement Procedures Act of 1974 (RESPA), in which your real estate agent must disclose any affiliated business arrangements (ABAs) they have.
Although this form may seem innocuous, signing it could potentially cost you hundreds of dollars in unnecessary fees. Before you sign an ABA disclosure from your real estate agent, read on to find out more about affiliated business arrangements and how they can end up costing you big bucks on your closing costs.
Does Your Real Estate Agent Have an Affiliated Business Arrangement?
In many states, including Pennsylvania and New Jersey, you, as the buyer, have the right to choose which company will provide your lender’s title insurance policy, but many buyers do not exercise this right. It may be because they don’t know they have the right to choose or because their real estate agent pressured them to use a certain company with which they have an affiliated business arrangement.
When they have an ABA, a real estate agent can share some of the profits from selling title insurance. Lenders will always require title insurance before they give you a loan, so if the agent can convince you to use the company with which they have an ABA, it will mean more profit for them on closing day. Unfortunately, not all title insurance companies are created equal. Although title insurance premiums are strictly regulated by the state, some companies charge higher fees than others. These fees could add up to hundreds of dollars or more in unexpected closing costs.
Sometimes, a real estate agent may have worked out an ABA with a title insurance company. In others, the agent may own the title insurance company, or it may be owned by the real estate agency they work for. In all of these cases, there is a clear conflict of interest, and RESPA requires that it be disclosed in a form that will authorize the agent to use the company of their choice if you choose to sign it. Some agents may try to sneak in this disclosure, hoping you won’t notice. Others may pressure you into signing it or mislead you into thinking you have to sign it for closing to go forward.
Are You Required to Sign an Affiliated Business Arrangement Disclosure?
If your real estate agent has pressured you into signing their ABA disclosure or has misled you into thinking you have to sign it, be aware that this is a violation of RESPA. Under no circumstances are you required to sign an ABA disclosure, and if you do sign it, you will be giving up your right to choose a title insurance company.
At World Wide Land Transfer, we do not ever recommend signing an ABA disclosure so you can retain your right to choose which title company will provide your lender’s title insurance. Because title insurance premiums are tightly regulated, shopping around can save you a lot of money in fees. You will also want to research title insurance companies in your area that provide the best customer service to ensure that, if you do need to resolve a title defect, it will be handled properly and that title agents will be available to answer your questions promptly.
Pennsylvania and New Jersey Title Insurance Companies
Real estate buyers in PA, NJ, and many other states have the right to choose their title insurance company, so we suggest you exercise that right. Don’t know if your state gives you the right to choose? Get in touch with World Wide Land Transfer today! We work with buyers, sellers, and lenders all over the country, and our experienced title agents will be happy to answer any questions you may have about title and escrow services in your state.
Visit our contact page to find phone numbers for our regional offices, and call us for more information about title insurance in Florida or in other states across the country.
World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.
