Buyer Beware: You Don’t Have to Use the Mortgage and Title Companies Affiliated with your Real Estate Broker. Make Sure You Shop Around!


Caveat emptor is Latin for “Let the buyer beware”.

A recent class-action lawsuit filed in the state of Minnesota is bringing to light a long-standing issue that affects buyers of residential real estate throughout the country—alleged steering of home buyers to affiliated title, settlement and mortgage companies by large realty brokers. This widely utilized practice often leads to consumers incurring a considerable amount of extra fees and costs when compared with fees and services offered by non-affiliated competitors.

Many real estate brokerages rely on the income generated by clients using mortgage and title companies that are affiliated with them. Brokerages often attempt to maximize their “capture rates” – the percentage of all home-sale transactions that use the affiliates’ services. A consumer typically ends up paying more fees than if he/she selected a non-affiliated competitor. The brokerages justify the additional expense to consumers by claiming that even if the affiliates’ fees or mortgage rates are not the lowest available, the quality and dependability of the affiliates’ services more than compensate for any price differences.

Over the past several years, many cases involving financial relationships between brokerages and their affiliates have withstood legal challenges. So long as the financial arrangement was properly structured to comply with federal anti-steering and anti-kickback rules, the Courts have been reluctant to intervene in these arrangements.

In the Minnesota lawsuit, two buyers filed claims against Coldwell Banker Burnet Realty Inc., one of the largest realty firms in the state. The Plaintiffs in the litigation charged that Coldwell Banker breached its fiduciary duties under state law when it steered the buyers to its own title and settlement affiliate, Burnet Title, despite knowing that the affiliate’s fees were significantly higher than those available from non-affiliated firms. In the case of a broker-client relationship, fiduciary duty means that a real estate broker is bound to put a client’s best interests ahead of the broker’s, and must not profit from the fiduciary relationship unless the client consents. A fiduciary is also supposed to disclose material facts that may affect the client’s best interests.

The claims asserted in the Minnesota litigation could be duplicated in other states: When real estate brokers or sales associates knowingly steer clients to higher-cost services that benefit the broker financially, they may violate the fiduciary responsibilities owed to those consumers. The Plaintiffs also alleged that Burnet Realty failed to disclose that its affiliated title company “retains at least 75 percent of each insurance premium,” or that the title affiliate’s fees “are among the highest, if not the highest, in Minnesota.” On a typical $250,000 home purchase, according to the suit, the title affiliate’s fees “can be several hundred dollars more” than those of non-affiliated competitors.

Consumers should be aware of the fact that often times a brokerage will pressure its sales associates to direct their clients’ closing and title insurance business to the affiliate. The company may also offer financial incentives to sales associates who cooperate, including a “quick check” program that pays agents’ commissions at closings, rather than at a later date, if the closing occurs at the affiliated title company.

So, how can home buyers protect themselves in these situations?

First, it is imperative that you read the fine print. Brokerages are required to disclose their relationships with affiliates, but often times the language is buried in small print somewhere in the agreement that the buyer or seller signs with his/her agent. Most importantly, consumers must remember that they have a choice. There is no legal requirement that a consumer utilize a mortgage company, title company or settlement company that is affiliated with the consumer’s broker. Make sure to check out the competition and shop around for the lowest cost title, best mortgage rates and other services.

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  1. This is really good info… thanks for the heads-up! It doesn’t surprise me though, real estate companies are ‘in it to win it’. If they can turn a higher profit by using preferred partners and perhaps stimulate salespersons by offering higher incentives, for using preferred partners… why wouldn’t they? I will definitely keep this article in mind when making my next home purchase. Thanks!

  2. Pretty solid advice there. You think people would realise using services suggested by the person you’re buying from may not be a good idea.

    I guess there are still a great many naive people in the world. Plus which, buying a house can be a major source of anxiety. What is your response to anxiety? You want it to end. So you take the quick and easy option.

  3. As a real estate attorney and owner of a title company, we do our best to market ourselves to all the local Realtors and mortage companies. However, the trend we see is that some of the national Realty companies now own their own mortgage companies and title companies, and they will find ways to punish their Realtor associates if they do not convince their clients to utilze the services of these in-house providers. One Realtor was told that if he did not increase his percentage of clients utilizing the in-house providers, he would be transferred to one of the undesireable slow satellite offices.

  4. Roberta Murphy on

    Joshua: Excellent article and information for all. For several years we have set maximums in purchase offers that our clients will pay for escrow services. We are also now disclosing the possibility of exorbitant escrow cancellation fees charged by at least one captive escrow company.

    Congratulations on your well-deserved People’s Choice nomination!

  5. Pingback: The Odysseus Medal — Stamping out white shoe corruption, with or without pay-per-click advertising | BloodhoundBlog: Real estate marketing and technology blog | Realtors and real estate, mortgages, lending, investments

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