I’m going to say this right off the bat: the person who pays for the title insurance is always up for negotiation.
The answer to the question of who traditionally pays for title insurance is complicated and can be confusing, but the bottom line is simple and I’ll say it again. It is always up for negotiation. The problem is that most people don’t know that, and so negotiation rarely happens. Keep this in mind before completing a real estate closing, and make sure that title insurance is on your list of important closing documents.
Location is the Key
The party that pays for title insurance varies depending on your location. This is why local market knowledge is essential. Policies related to title insurance are different all over the country. Even within one state, the traditions can vary. In Florida, 53 counties follow the precedent of the seller paying for title insurance. The exceptions to that rule are Broward, Miami Dade, Collier and Sarasota counties, where the buyer usually pays. Again, the person who actually pays can be discussed between the parties, but these are the traditional roles.
Why Do I Need Title Insurance?
Title insurance is an extremely important aspect of owning a property, yet it is not as widely understood as other types of insurance. A property’s title is the owner’s legal right to the control of the property. Therefore, title insurance protects the property owner’s investment by outlining the specific legal details of the property, and allowing the owner to have someone on their side in case anyone challenges their right to own and use the property. Title insurance is indemnity insurance, not casualty insurance.
Types of Title Insurance
There are two types of title insurance, both of which are legally required in Florida. Lender insurance protects the company who provided the loan for the purchase of the property and their investment, and owner insurance protects the individual who purchased the property. In Florida, rates for title insurance are prorated, so they cost the same everywhere. When you buy an owner’s policy it’s for the amount you’re paying for the home. However, there is no escalation clause, so if there is an issue with the title, the owner can only get what they paid for the property, in spite of what it might be worth at the time of incurrence.
A lender title insurance policy is required by the lender of the loan based on the amount of the mortgage, but the lender does not determine who pays for the insurance, so no matter who pays for it, the insurance needs to be purchased. The party who agrees to pay for the title insurance policies after any negotiations should be clearly defined in the real estate contract. Also, whoever is paying has the right to choose the title insurance company from whom they will purchase their policy.
One more time: whether the buyer or seller pays for the title insurance is negotiable in the purchase and sale of a property. You can always follow tradition, but always remember that you have a choice.