The real estate industry is one that never sleeps, and title companies play a pivotal role in every property transaction and ensure the smooth transfer of property ownership. In 2023, over 5 million house sales were completed in the US.1 That’s 5 million times a title company would have been part of the process – and that figure doesn’t even include other real estate transactions like refinances.
So, if you are interested in learning how to start a title company, check out our guide!
Business Description
A title company performs title searches to verify legal ownership of real estate and provides settlement services to transfer property from a seller to a buyer. The title search process involves extensive research into public records to confirm the property has a clear “chain of title” with no liens or other encumbrances so that the buyer is legally purchasing the property from the rightful owner.
Title companies make money by charging fees for their services, which can include title searches, document recording, and escrow services. The fees vary depending on the location, type of property, and complexity of the transaction, but can range from a few hundred to several thousand dollars.
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Industry Summary
The title insurance industry in the United States is a significant segment of the real estate sector. According to IBISWorld, the Title Insurance industry in the US has grown 9.8% per year on average over the last five years and in 2022, generated $29.8 billion.2 The industry is expected to continue to grow, driven by factors such as an increase in the number of real estate transactions, rising property values, and the ongoing need for title insurance services.
Steps To Start A Title Company
Step 1: Understand Regulations & Licensing Requirements
The first step in starting a title company is to understand the regulations and licensing requirements associated with this industry. Each state in the United States has its own specific laws and regulations governing the operations of title companies, and it could take several weeks to a few months to complete the licensing process.
Step 2: Write a Business Plan
The next step is to create a business plan. A business plan outlines your strategy and helps you focus on key aspects of your title company. By having a clear strategy in place, you can make informed decisions that align with your goals.
Another reason to write a business plan is to provide a clear picture of what you’re up against. By analyzing competitor strengths, pricing strategies, and their network of referrals, you gain invaluable insights. This knowledge also helps you position your title company in a way that sets you apart and appeals to your target customers.
Perhaps most importantly, in the financial projection section, you will estimate startup costs, in addition to revenue and expenses. This information is essential for budgeting, securing financing, and assessing the financial feasibility of your title company.
Related: How to write a business plan
Step 3: Source Funding
After writing the business plan, securing funding is the next step to take care of. Let’s explore the types of funding that are commonly used in this industry:
Personal investment: Start by assessing your personal savings to see how much you can use to finance your business. If your personal savings are not sufficient to cover all the startup costs, you will need to explore outside funding sources.
Lenders: A common option is to seek financing from lenders such as banks or credit unions. Lenders typically require borrowers to invest at least 15% of their personal funds towards the total cost of the project. They also look for a good credit score and sufficient collateral, such as real estate or business assets, to secure the loan.
In some cases, if the bank needs additional security to back the loan, they may use a Small Business Administration (SBA) loan guarantee. The SBA guarantees a portion of the loan, reducing the risk for the lender and making it easier for small businesses to access financing.
Friends and family: Borrowing from friends and family is another option. While this can be a more accessible source of funds, put agreements in writing to outline the terms of the loan, including repayment schedules.
Microloans: When traditional lending options are unavailable, or you need smaller funding amounts, microloans can be an alternative. These loans are provided by local economic development organizations and sometimes include business training along with the funding.
Related: Finding the money to start a business
Step 4: Register the Business
Starting a title company involves several legal steps, including choosing a business structure, registering your business name, obtaining necessary licenses and permits, and complying with federal regulations.
Choosing a business structure: The first step in legally establishing your business is to decide on a structure. There are four main types of business structures:
- Sole proprietorship: The simplest and least expensive structure to establish. As a sole proprietor, you’re the sole owner of the business, and there’s no legal distinction between you and the business. It’s easy to start and has lower costs. However, it doesn’t offer any liability protection.
- General partnership: A business owned by two or more people who agree to share in the profits and losses of the business. Like a sole proprietorship, a general partnership doesn’t provide liability protection, and each partner is personally responsible for the business’s debts.
- Corporation: A corporation is a separate legal entity from its owners, providing them with liability protection. However, it’s more complex and costly to set up and requires ongoing administrative work.
- Limited Liability Company (LLC): An LLC combines elements of partnerships and corporations. It provides owners with liability protection, like a corporation, but with less administrative complexity.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Obtaining licenses and permits: The title industry is highly regulated, and you’ll need to obtain the necessary licenses and permits to operate. These may include a title agent license, escrow agent license, and/or real estate broker license, depending on your state’s requirements. Check with your state’s insurance department or similar regulatory body for specific licensing requirements.
In addition, there will likely be a variety of general business registrations needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Related: State guides for general business licensing
Complying with legal requirements: Title companies are federally regulated by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), which govern the settlement process and prohibit kickbacks between lenders, title companies, and real estate agents. In 2013, the Consumer Finance Protection Bureau (CFPB) combined these two acts into the TILA-RESPA Integrated Disclosure (TRID).3
Step 5: Set Up Operations
With the funding and legal requirements out of the way, now it’s time to think about the operational side of things.
The first consideration is the location of your title company. Consider factors such as proximity to real estate agencies, law firms, and other potential sources of business. The location should be situated in a commercial area that is visible and easy to find. This makes it easier for clients to get to the office for closing and other transactions.
Once you’ve chosen the ideal location, setting up your office is the next step. Your office should be equipped with the necessary technology and equipment to manage title searches, escrow management, and customer communication. You’ll also need to choose escrow management software, which allows you to collect and hold client funds and disperse them once the transaction is complete. Also, consider how you will store your data.
Last, you’ll need to choose an underwriter. A title underwriter is an entity that authorizes and issues authority for its agents (title agencies) to write title insurance policies. In essence, they are the backbone of your title insurance services, so it’s important to choose a reputable and reliable underwriter who can provide the necessary support in navigating through complex title issues. This underwriter will be the entity that authorizes your agency to write title insurance policies and assumes the ultimate financial risk.
Step 6: Hire Staff
When starting a title company, you may find it necessary to hire staff to handle various tasks such as title searches, customer service, and administrative duties. And as a new employer, you have certain legal responsibilities to consider before hiring. Here is a basic overview of these requirements:
First, you need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This unique identifier is used for tax purposes and ensures proper reporting of employment taxes.
Next, it’s important to verify the employment eligibility of your prospective employees. This involves completing the Form I-9, which verifies the identity and work authorization of individuals.
Be aware that each state has different forms and reporting requirements for new hires. This can include reporting new employees to the state’s new hire reporting agency and adhering to state-specific labor laws. Also, worker’s compensation insurance is generally required by most states. This coverage protects employees in the event of work-related injuries or illnesses. Make sure to obtain the necessary worker’s compensation insurance as required by your state.
Last, familiarize yourself with labor laws, such as minimum wage and overtime regulations, to ensure compliance with employment standards. Knowing and adhering to these laws will help maintain a fair and lawful work environment.
Related: State guides for hiring your first employee
Step 7: Prepare to Open!
Starting a title company involves several core steps, but there are also other important tasks to consider. These remaining steps can vary based on individual needs, and may include:
Business insurance: Common types of insurance for a title company include professional liability insurance (also known as errors and omissions insurance), general liability insurance, and cyber liability insurance. Your company will also be required to carry a surety or fidelity bond of at least $50,000, depending on the state.
Setting up bookkeeping: This includes setting up bookkeeping processes to manage daily transactions, track expenses, and generate accurate financial statements. You may choose to hire a bookkeeper or utilize accounting software to streamline these tasks.
Contracts: Contracts play a significant role in the title industry. Some examples of relevant contracts include purchase agreements, title examination contracts, and closing contracts. These agreements outline the terms and conditions of your services and help protect the interests of all parties involved in real estate transactions.
Opening a business bank account: Opening a dedicated business bank account allows you to keep personal and business transactions separate, simplifying record-keeping and ensuring accurate financial reporting.
Creating a marketing strategy: To attract potential customers, it’s important to develop a marketing strategy for your title company. This could include creating a professional logo and website to establish your online presence. Additionally, consider other marketing channels, such as networking with real estate agents, attending industry events, and utilizing social media platforms to promote your services.
Preparing for the grand opening: Once you’ve completed the necessary setup tasks, it’s time to prepare for your title company’s grand opening. This may involve planning an event, inviting key industry professionals, and promoting your launch to establish a strong presence in the market. Additionally, ensure you have all essential office supplies, equipment, and systems ready for operation.
Common Questions When Starting A Title Company
How much does it cost to start a title company?
Starting a title company involves various expenses, and understanding these costs is crucial for potential owners. The total cost to start a title company can vary widely based on factors like location, size, and the services offered, but generally, the initial investment might range from $25,000 to $100,000. Here’s a rough breakdown:
Office setup: Setting up an office involves leasing a space, buying furniture, and equipping the office with the necessary technology. Lease deposits could cost $5,000, while leasehold improvements and furnishing the office could cost an additional $5,000 or more.
Software and technology: Software like SoftPro or Landtech can cost between $5,000 and $10,000. General office software and hardware may add another $2,000 to $5,000.
Business registration: Registering your business involves fees for incorporation or forming an LLC, which can range from $50 to $800, depending on the state.
Licensing and permits: Depending on the state, licensing and permit fees can range from $500 to $2,000.
Insurance: Initial insurance costs may range from $2,000 to $5,000, depending on coverage levels and location.
Marketing: Initial marketing costs, including website development, branding, and initial advertising campaigns, can range from $2,000 to $5,000.
Legal and professional fees: Costs for legal advice, contract development, and financial consultation can range from $1,000 to $5,000.
Miscellaneous startup costs: This includes office supplies, initial stationery, and other small expenses, which could total around $500 to $1,000.
What is the NAICS code for a title company business?
The NAICS code for a title company business is 541191.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
