Buying a house can be a daunting task. Agents, contracts, inspections, loan approval, title insurance, closing costs, and of course, reams of paperwork. At some point in the process of collecting documentation and scheduling yet another appointment, you’ve no doubt said, “Isn’t there an easier way?

You aren’t alone in having thoughts like this, so when your realtor comes to you with yet another document to sign, this time disclosing their ABA (Affiliated Business Arrangement) with a particular lender or title company, you may let out an instant sigh of relief and sign away, trusting the agent has simply vetted these service providers on your behalf (what great customer service!). 

Stop! Don’t sign anything until you’ve read that document carefully and made note of what it’s really saying- and what it conspicuously leaves out.

At Trustworthy Title, we do not believe in ABAs. When real estate agencies link arms with related service providers and strongly pressure clients to use their preferred lender or title company, it’s almost always the businesses that benefit, not the client.

The ABA Beneficiaries

In a real estate market that has been unpredictable at best in recent years, a trend has shifted in the establishment of ABA’s. Whereas once this was done by large firms and brokerages, the economic downturn has led to individual agents and teams creating their own alliances to ensure business stability when so much seems out of control.

When an ABA exists, the service provider typically offers financial compensation to the real estate agent or broker for channeling business their way. For every referred client who uses their services, the real estate agent pockets a “finder’s fee”. These perks are not paid by the company; they’ll be rolled into YOUR closing costs when you buy your home. 

Some brokers will even form their own title company or lending service, making their agency a one-stop-shop for the entire home sale transaction, a conglomeration known as a joint venture. While the convenience is appealing, ultimately, the beneficiary is the broker or agent, and you are funding this benefit through every step of the process.

Secrecy is Illegal

While it is legal for real estate brokers and agents to enter into ABA’s with related service providers, it is NOT legal for them to keep this agreement secret. When your agent recommends a particular title insurance company, they are required, by the Real Estate Settlement and Procedures Act, to present you with a disclosure document revealing the alliance. If they have an ABA, they are required to have you sign the document, acknowledging its existence.

Typically, the ABA disclosure is tucked into the agent’s much larger packet of disclosures and agreements, so it can be easy to overlook. Take your time and read the forms and information presented to you, even if it seems overwhelming or “just a standard contract”.  

As you read the disclosure, watch out for any deceptions. The relationship between companies must be described and name all involved parties. Their ownership percentage in a joint venture must be revealed, and it must be stated that you are allowed to explore your options for the best provider for you. Additionally, there should be no implication that their referral fees are “industry standard” or that you won’t find a better price elsewhere.

You’re Not Obligated to the ABA Provided Company

Your real estate agent is in sales, and as such is great at persuasion. He may apply heavy pressure for you to work with his preferred title insurance company, and even tell you the many reasons this is to your advantage. Arrest the conversation right there until you’ve been given some clear answers to key questions.

  • Why do you recommend this service provider?
  • How do you benefit from this referral?
  • Are you receiving monetary compensation from this agreement?
  • What additional fees will be added to my closing costs as a result?
  • Is there any reason not to shop around for the best provider?

Remember that the real estate agent works for you, not the other way around, and you have every right to be satisfied with the answers you receive…and have time to conduct your own research…before choosing a service provider.

A Better Option

For the best title search and insurance company, choose your provider just as you would any other service professional. Look for a business that has an outstanding reputation with previous clients and outstanding Better Business Bureau ratings. Seek out companies that are local and long-established within the community. We invite you to take a look at Trustworthy Title, and we would like to earn the privilege of your business. We take our reputation and our customer service orientation very seriously, and we can assure you that we’ll never participate in an ABA. That means no kickbacks, no false representation, and no hidden fees, just the shared goal of helping you find the home you’ve always wanted. Give us a call today.