“The Title Business in a Post-Pandemic World”

by Michael Holden

Time.com published an article on March 22, 2021, titled, “Spain Is Going to Trial a 4-Day Work Week. Could the Idea Go Mainstream Post-Pandemic?” In the article, by Lisa Abend, she describes the national trial the Spanish government is rolling out to change how Spaniards work in the post-pandemic economy. The plan is to use government funding to sponsor 200 companies to switch to a four-day work week and pay their employees the same salary with the funding. It will be an interesting experiment to watch. 

While Spain’s national trial of a four-day work week may not translate to the title insurance industry in the United States, it does give a glimpse into how so many countries, businesses and municipalities are investigating how work will look post-pandemic. What we have learned in the past year of lockdowns and endless Zoom meetings may be informative on how we start building a new working dynamic in the title industry.

Starting with the five-day work week, some changes in scheduling are certainly possible as we get back to normal. When I owned my title agency, I had an employee who worked a 5/4/1 schedule. She worked five days the first week for nine hours a day. She worked four days the second week for nine hours a day, and she had every other Friday off from work. She was working an 81-hour pay period each two-week period, and she got a day off twice a month. It was a good deal for my company as she was one of the most focused and productive employees on staff. It was also a good deal for her as she used that extra Friday off to volunteer at her daughter’s school twice a month. We do not have to be locked into the Monday through Friday nine to five work week. Working four 10-hour days, the example above of 5/4/1, or other adjustments to work schedules may be a first step to reimagining work in a post-pandemic world.

Another question that looms large is, how much can the title industry embrace remote work? We learned that so many of our staff can effectively work from home during the pandemic. How many of them will need to return to offices? Will employees opt to working remotely or will there be a mix of two days a week from home and three days a week from an office. If we have less people working in offices, does that mean our office space can shrink? Prior to the pandemic, about 10 percent of the U.S. workforce was working entirely remotely. That number shot up to 50 percent when the pandemic hit. As we get back to work and begin fully opening up again, even if the number of people working from home settles at 25 percent, that is still two-and-a-half times what it was in 2019.  That would mean thousands of empty offices across the United States and potentially the need to reduce office space. 

The combination of remote work and adjusting work schedules brings up a third need the title industry will have to embrace to increase productivity. That need is technology. Regardless if you are working a flex schedule, or working remotely part time or full time, technology will be the key to growth. During the pandemic, I spoke to a title agent in Florida. He has a large agency and has an in-house IT specialist. During the pandemic, he had the advantage of directing his IT specialist to create completely digital workstations and ship them to his employees to work from home. This completely digital workstation or laptop was connected to the company’s virtual private network and could work with the company’s shared files without the need for printing. This completely virtual environment eliminated problems with non-public personal information in homes. Title production software mostly can work in a remote environment. Many systems have an option to be web based, which allows employees to access files anywhere there is an internet connection. 

These three key areas will define how the title industry fully reopens and moves back to a more normal operating procedure. How we answer the questions of flex schedules, remote work and technology will define the next decade. My experience in the business tells me that innovation and experimentation are going to be in high demand. Workers will gravitate to businesses that can offer these arrangements and can newly define the way work is conducted for our industry. 

The article mentioned at the beginning cited a study published by the Cambridge Journal of Economics that projected that a change in work schedule to eliminate just five hours a week from employees’ time would result in an overall increase in production and a 1.4 percent rise in gross domestic product for Spain. Could the title industry be on the cusp of an increase in productivity coming out of the pandemic? I think that is highly likely.

“The only place success comes before work is in the dictionary” – Vince Lombardi, 1913-1970, legendary football coach and executive in the National Football League.

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How do I market a title agency for sale?

The Ramblings of a Title Man

by Michael Holden

Last month, I focused on the upward trend in the title industry of growing by acquisition and the steps and considerations on how to buy a title agency. I was surprised by many replies, and one in particular caught my eye. Someone asked: “If I am interested in selling, how should I proceed?” IThis is a great question. What should you do if you want to prepare your company for a sale? There are things sellers can do to make their company more appealing to buyers, but first, let’s review the rule of thumb from last month on value of a title agency.

Last month I wrote: “A title agency is an asset that produces incomeit has a value, based on what it earns and produces in profit.” That is true if you are a seller as well. There are many ways to value a company, but the one I like to use is “one times gross vs. five times net.” This evaluation technique takes the financial statements of the company to be acquired and reviews and compares its gross revenues against its net profit. A healthy company will calculate the same exact number for a potential purchase price. Here is how it works:

Target company: Yearly gross revenue:  $500,000.00 Annual expenses:      -$400,000.00 Annual net profit:     $100,000.00One times gross method: Yearly gross revenue:  $500,000.00 Value of company:    $500,000.00Five times net method: Yearly net profit:     $100,000.00 Five times net:      $500,000.00

In our example above, because the company has the normal industry average of 20% net profit as a percentage of gross revenues, this company values the same with both methods. Companies with lower profit margins value lower, and companies with higher profit margins value higher. This method of value gives most companies a good barometer of the value of which to start.

But if you are selling a title agency, how do you maximize your value and get the most for your company? There are two fundamental strategies – grow revenue and eliminate expenses. Anything you can do to add dollars to the top line revenue number will help you. I evaluated a company for a purchase that had $3 million in top line gross revenue. However, the company did not recognize the revenue from their closing fees. The company’s closing officers were paid as 1099 employees and they earned the closing fee as their income. This company had over $1 million in closing fees that were not being counted as top line revenue. By counting closing fees as a pass-through to the closing officers, they missed the ability to cast their company as a $4 millioncompany versus a $3 million company. 

The other side of the formula above is the expense piece. Many title agencies are closely-held family businesses.  They often have expenses on the books that do not represent the cost of running the business. Another title agency I evaluated for purchase had six company cars – that cost the company about $36,000 in lease payments, gas and insurance. I found out that five of those cars were used by family members who did not work in the business, including two of the owner’s children. These hidden expenses make companies look less profitable than they are.  Getting these expenses off the books and showing as much profit as you can on the tax return is a sure way to increase the value of the company. 

Lastly, now that your company is showing the most revenue and the least expense on its books, the next step is to market your company for sale. There are many benefits to using a business broker for this step. A business broker can expose your company to the widest audience of potential purchasers. Talking to your underwriter is also an excellent step, because they may know of an agent who is in the market to acquire another title agency. As part of offering your business for sale, you also must decide what your personal exit strategy is going to be. Will you stay on to train the new owner? Will you stay on for 3-5 years in what is typically called an ‘earn-out’ type of sale? Or do you just want to walk away and retire? Having an exit plan when you talk to potential buyers is key, and being flexible is also helpful in opening you to the most possible offers. 

“I haven’t quite got the hang of this retirement thing.”  – Walter Cronkite, 1916-2009, American Broadcast Journalist, CBS Evening News anchor, once named ‘The most trusted man in America’

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Do you really know the difference between the underwriter and the title agent?

I recently received a phone call from a salesperson selling services to title agencies. The service was connecting real estate agents to title agents when customers listed and sold homes on a certain web site. Unfortunately, I could not get the salesperson to grasp the concept that my company was an underwriter, and we did not have direct offices. He continued extolling the virtues of his service and explained how I could capture more real estate agent deals if my company used his service. Again and again, I explained that my company was an underwriter, and we do not communicate directly to real estate agents or solicit real estate agent deals. Needless to say, the call was frustrating.

However, the call did get me thinking: Do people outside our industry know what the role of title agent and underwriter are and how they intersect? The title agent/underwriter relationship is as old as title insurance itself.  At the onset of the industry, every state had local or regional underwriter companies. Most were located in large cities.  These underwriter companies filled the role of both the title agent (handling individual transactions) and issuing insurance (title insurance policies).

Over time, many states began moving to a title insurance agency model. The city or state underwriters started appointing abstract companies in local communities to issue their policies. For the first 75 years of the 20th century, most states operated with this patchwork of having title underwriters in large cities, acting as both the title agent and insurance company, and smaller communities had abstract or independent title agents who acted as policy issuing agents for the insurance company. This framework blurred the lines of what a title agent does and what an underwriter does.

Starting with the major mergers of regional title underwriters in the 1980s and 1990s, title underwriters became more national in scope. Many underwriters increased their number of independent agents to include agents in all 50 states. Those larger companies began to diversify their operations, separating the pure underwriter element from the title agency element of doing specific transactional work. This operational change continued in the 2000s as the so called “direct offices” of underwriters were re-classified as “affiliated agents,” and became licensed under the agency laws of each state. While legally, most offices where closings happen are licensed as agents today, they still blur the lines between title agent and underwriter because the title agencies use similar sounding names as the underwriter companies they are associated with. Think of ABC National Title Insurance Company as an underwriter and its affiliated direct office ABC Title Company, for example.

In an attempt to delineate the roles of the title agent and underwriter, the following Venn diagram may be helpful:

Some underwriters choose to operate 100 percent through independent agents. Other underwriters have a dual business model in which they operate direct issuing offices of the underwriter and work with independent agents across the country. Both a title agent and a title underwriter can close individual deals. But here is the concept that seems most difficult to grasp – the business associates at an underwriter who work with agents are far removed from the day-to-day closings of those agents. Few underwriters today are so small that the day-to-day closings and the appointment of agents are done by the same person or people. Therefore, generally speaking, underwriters appoint agents (affiliated or independent) and agents close deals.  The companies may have similar sounding names, especially if its an affiliated (direct) agent, but the roles are separate and distinct. 

“If you work just for money, you’ll never make it. But if you love what you are doing, and always put the customer first, success will be yours.” ~ Ray Kroc, 1902-1984, American Business Tycoon, built the McDonald’s Corporation into a worldwide fast food chain.

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Grow your Title Business

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Three Questions You Should Answer To Be Successful In 2019

By all accounts, 2019 will be more challenging than last year. But opportunity abounds! The pie may, or may not, be larger this year but your slice of it could!

The three most important questions you should answer this year…

Q: Have you audited your operations and processes recently? Is your team spending too much time in each file? Does your staff unnecessarily touch a file more than once? Is your title software synced up with your workflow?

A: Hire THE operations consultant experts in the title industry. Before you say, “They’re too expensive!”, stop. There are several brilliant title consultants who are reasonably priced and will have an initial conversation with you at no charge. They are gurus in the areas of workflow, operational efficiency and software optimization. Check out Kay Underwood and Brie McDaniel of http://titleinsuranceconsultants.com and Stephanie Fullerton of www.streamline.rocks. These ladies are smart, super-talented and practically guaranteed to make your title business operate better.

Q: Has everyone in your company bought into the concept they are part of the “sales” process? I put “sales” in quotes, because it tends to be sort of a four-letter word around most offices. “I’m not in sales!” is not unusual for an owner to hear from someone with a title not ending in “rep”. But if your entire team isn’t in on growing the business your organization will suffer.

A: Enter “The first lady of sales”, Cynthia McGovern, PhD. Yes, she’s a doctor and she’s damn good at what she does. According to Cindy, “…everyone in an organization is a representative of that organization at work, at home,and at play. I think it is important leadership makes sure that everyone understands they are in sales and more importantly understands what they can do to impact the goals and growth of the organization. ”

From assessment, to strategy and then implementation, Cindy goes on to say, “I think it starts with redefining “sales” . It’s not the old school pushy sales that you find at a car dealership or in timeshare sales or something like that. It’s about understanding the needs of our customers and potential customers and finding ways to satisfy those needs.” www.orangeleafconsulting.com

Q: Is your operation spending time unnecessarily pre-closing getting basic intake information from buyers and sellers? Does your team spend one or more hours on each file calling homeowners, leaving voicemail message or sending emails just to find out if they have an HOA (sellers) or how they want the property vested (buyers)…and more? Are you struggling to read their handwriting only to type incorrect information into your escrow file? Are you protected if anyone with funds to close wires their money to the “bank of the bad guys” because they received a spoofed email?

A: Title technology guru (yes, another “guru”!) Jim Adams has your answers. He knows how to apply technology, integrated with your title software, to reduce time in a file getting homeowner information, while protecting against wire fraud. He can eliminate sloppily filled out homeowner documents and double data entry (what a waste of time!) using a secure web portal to interface with your title software. Oh, and he can show you how to know when any homeowner you closed in the past is returning to the market! This is groundbreaking stuff that will give you the edge over your competition you’ve always wanted. jadams@nextdeal.us

Million dollar (at least) answers that can make the difference between a good year and a great year!

Robert L. Reich, CEO, NextDeal

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Blockchain And Real Estate: Will It Work?

Leax Foundation – Leaxcoin (LEAX)Oct 22, 2018

There is a lot being written about blockchains, bitcoin, and related technologies, and for many real estate professionals, this is part of a brave, new, confusing world of technology. Like the original internet, the blockchain is a revolution in technology that will touch all people and all businesses. So people are paying attention, but many still don’t understand what the blockchain is.

Bob declares back to you, “You now own my Rolex.” There are 1,000 witnesses who can each declare, without a doubt, that your car now belongs to Bob, and the Rolex belongs to you. If anyone in the audience later tells a conflicting account of who owns the car or the Rolex, the other 999 people will refute it. And, if you take a spare set of your keys and try to give that same car to someone else, the 1,000 audience members will confirm that Bob owns the car, as each of them witnessed the “transaction.” This is the essence of how the blockchain works.

In its most simple sense, the blockchain is a series of computers (thousands to potentially millions of them) that each keep the same record of an event or transaction in a ledger that is open to the public. Each record is encrypted, and the ledger is virtually hack-proof. Since all these computers see the same thing, they offer a consensus that the recorded event or transaction is valid. The most important value of the blockchain is that it allows two or more parties to interact with, say, a financial transaction, with no middleman.

Interestingly enough, when people buy homes with bitcoin, they really are still buying with cash. It’s just being converted to bitcoin first. So, the next time you read about a bitcoin home sale, it is generally still a traditional cash sale.

The Blockchain Has Many Applications

What makes the blockchain universal is how it can be implemented for just about any kind of transaction, record-keeping or agreement between one or more parties. These can include:

• Smart contracts.

• Voting and elections.

• Supply chain management.

• Intellectual rights, patents, trademarks.

• Property rights.

• Criminals records.

• Medical records and history.

• Personal records and credit history.

As long as there is information that represents an agreement or record, the blockchain can record, encrypt and protect that information for eternity.

Real Estate And The Blockchain

For real estate, the blockchain has the potential to change the way we do business. We are developing smart contracts, which will enable real estate contracts, escrows, property records (deeds, for example) to be completed and monies distributed without title companies or attorneys. These contracts are often compared to a vending machine concept: You deposit your money, and the machine spits out a product with no human intervention.

In the near future, it may be possible for a homebuyer to buy a home and complete the sale (along with escrow and title insurance) by clicking on a shopping cart on a website. The blockchain will ensure that the buyer gets the title or deed and the seller gets the cash (via a cryptocurrency). The blockchain will also record the title or deed to the appropriate public records, such as a county in the United States or similar.

Real estate professionals will continue to thrive in the era of the blockchain. The advice, knowledge and hand-holding of real estate professionals will always be an important part of a buyer or seller’s process. However, the handling of money and transactions will inevitably change, and that change is already underway. Brokerages will need to adapt their business models to understand and enable smart transactions but otherwise will continue to thrive in the era of the blockchain.

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Blockchain

Blockchain has the potential to disrupt the title industry.  We should know more about it.

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Digital Closings

1 credit

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digital closingsThere has been an explosion of interest in eClosings in the industry.   Because of the savings of time and resources realized by the use of digital closings, lenders and title insurers are beginning to look into ways to utilize the technology.  The Consumer Financial Protection Bureau sponsored a pilot that tested eClosings and it showed that the technology had a positive influence on the closing process.  Government Sponsored Entities(GSE) have made eClosings a part of their scorecard when evaluation lenders.  Consumers appreciate the advantages that digital closings bring to their experience.   Digital Closings are making their way into the Real Estate closing process and title agents need to understand the process and how they can incorporate the process into their workflow.

The presenter is Nancy G. Pratt who is the Vice President of Partner Relations and Government Affairs for Pavaso.  She provides team leadership in attaining company goals, and manages the strategic relationships for the growth of the company.  She is responsible in maintaining the relationships at Federal and State level, understanding key regulatory issues and laws that pertain to the operations of Pavaso.   She is involved with Sales Support and strategy of the promotion and development of the Digital Mortgage Solutions throughout the Title agent network and lender segment of the industry.

Nancy has over 14 years of experience in the eMortgage/eClosing space, which played a key role in leading the go-to-market and implementation strategies for Pavaso’s two CFPB pilots.

Nancy has been in the mortgage/title industry for over 35 years and highlights of her career include industry milestones of performing the first complete eMortgage with lenders and conducting the first ever FHA and VA eClosings.

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Insuring 1031 Tax Deferred Exchanges

1031

2 credits

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A tax-deferred exchange is a valuable investment tool that allows you to dispose of investment properties and acquire “like-kind” properties while deferring federal capital gains taxes and depreciation recapture. When insuring 1031 exchange deals, title insurance professionals need to understand the intricacies of the transaction in order to insure the deal.

  • What is “like kind” property
  • What is “Boot”
  • What is a “reverse exchange
  • What if a taxpayer wants to acquire replacement property prior to the closing of the relinquished property?
  • How does one dispose of their personal property investments while deferring capital gains tax and, in most cases, depreciation recapture?

Learn all of these terms and more in this discussion of 1031 exchanges and how to insure them.

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Enroll for Free on your birthday

Remember to update your profile so that you can enroll in a course for free on your birthday and be notified 30 days before your license expires so you have plenty of time to complete your CE requirements. Update your profile here.

About the Speaker

Michael began working in the title industry for his father in 1984 part time before entering high school.  Since entering the field full time in 1989, Michael has examined over 15,000 real estate titles, written policies in excess of $100 million dollars, and handled closings of thousands of commercial and residential properties through out the country.

Michael currently serves as the Ohio and Michigan State Agency Manager for North American Title Insurance Company.  To work with him and North American Title, please click here:  NATIC

Michael has served on the American Land Title Association’s education committee responsible for setting educational programs for the association from 2000 to 2008.  He also has served on the ALTA’s Abstractors and Agent’s section committee to the Board of Governors.  Currently he  serves on the ALTA Public Relations Committee.

Michael is a regular speaker for the title industry.  He has been a featured speaker at the American Land Title Association Technology Forum; and the Missouri, Montana,Wyoming, Kansas, Michigan, Ohio, Nebraska, Virginia and South Dakota Land Title Associations.

Michael is an alumnus of the University of Missouri, and was recognized by October Research as “top 40 under 40” in 2007.  He enjoys travel, skiing and spending time with family.

Michael has a proud legacy of family leadership in the title insurance industry.  He and/or a member of his family has been active in the business continuously since 1920.

Michael Holden Seminars provides educational programs to Title Agents, Escrow Closers, Mortgage Lenders, Attorneys and Real Estate Agents.  Topics available include:

• RESPA reform, CFPB, the Dodd-Frank Act and affiliated business arrangements
• Bankruptcy, Federal Issues, Federal Tax Liens and Railroads
• Business operations, process streamlining, workflow centralization and cost reduction
• Marketing, business retention, sales, and internal marketing systems

 

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Surveys and Descriptions

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surveysEstimated Length: 3 hours
Credits: 3
Enrollment Valid For: 12 months
Surveying or land surveying is the technique and science of accurately determining the terrestrial or three-dimensional position of points and the distances and angles between them. These points are usually on the surface of the Earth, and they are often used to establish land maps and boundaries for ownership or governmental purposes.  For purposes of Title, they are used in the “Description”. To accomplish their objective, surveyors use elements of geometry, engineering, trigonometry, mathematics, physics, and law. This course discusses surveys and descriptions and their relationship the title insurance.
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