FOR MANY SETTLEMENT SERVICES BUSINESSES, 2023 HAS BEEN A CHALLENGING YEAR. Although there will certainly be a rebound at some point, the most successful firms and owners have rolled out several new strategies to bolster revenue until then. After all, Fannie Mae forecasted an overall origination volume of $1.69 trillion this year. It’s not the jaw-dropping number we saw in 2021, but many industry veterans can remember years when a forecasted volume of over $1 trillion was reason for excitement.
The bottom line is that there is business out there, somewhere, for title agents and settlement services firms. But how do you go about finding it?
It’s a solid approach to take many of the usual, proven steps we all rely on when a market becomes soft. We’re all building or shoring up our relationships with local brokerages and Realtors. We’re checking in on loan originators and executives at the regional banks and lenders. And, although it’s not something any of us wants to do, we’ve cut our costs and traded fixed expenses for variable expenses.
However, in especially tough market cycles, those steps may not be enough. We’ve seen considerable contraction throughout the market already, and capital infusions are hard to come by. Revenue is the lifeblood of any business, and there are no true substitutes.
One proven approach to locating and tapping into real estate volume that may not be taking place in our local markets is partnership, whether through a joint venture or other means. Not every title agency is national in its geographic footprint. Not every firm is positioned for maximum operating efficiency. When revenue is down, it’s not easy for most to simply acquire another brick-and-mortar operation in a new market or make a massive investment in operational technology. That’s where partnership comes in, and it’s what an increasing number of title firms are doing in a variety of ways.
It’s easy enough to decide to enter a hot market to get a piece of the action. It’s also easier said than done. Licensing and state or local regulations can create a huge barrier to entry. The expense of building a new operation or acquiring an existing operation—while quite plausible for those with cash reserves—is generally not what most are looking for when the order count is low. And then, there’s the obvious reality that unless an incoming title agent or owner is already familiar with the nuances of a new market or the customs of local brokerages and banks, success is anything but guaranteed for the newcomer.
Another consideration for expanding one’s footprint is the recruiting and hiring of quality local talent. Start-ups or new firms tend to attract the available talent, rather than the top talent. More often than not, that talent is available for a reason. When it comes to wooing the best title personnel, a new firm may get one shot to win them over. A firm that’s just opened its doors in a new market can get off to a disastrous start if it’s built around the wrong person, the wrong team or wrong culture. Partnering with an established local agency with a reputation for good leadership, culture and service can help a firm avoid potential mistakes from the very start.
Whether via joint venture or other forms of less regulated, informal partnership, we’re seeing an increasing number of title agencies entering new geographic markets by partnering with firms that are already well established there. Although we’re also seeing some make the effort to enter new markets with affiliated arrangements that forego the participation of a local title agency, relying instead on their banking or realty joint venture partners, there are quite a few potential pitfalls to going that route, not the least of which is the increasing regulatory scrutiny on suchventures.
Better to rely on the experience and expertise of a local firm when partnering to enter a new market. An established local title business should be comfortable with the in’s and out’s of its home territory. It’s also likely they have the resources and experience to assemble a compliant arrangement without rankling local enforcement agencies.
One doesn’t need to enter new geographic markets to weather the storm, either. Cutting expenses effectively while improving an operation’s effectiveness not only helps margins when times are tough, but also positions businesses to ramp up quickly when order counts start to rise again. After all, a lender isn’t going to gradually increase the order count in deference to the title agent who’s frantically onboarding new staff. Entering new partnerships also makes great sense for agents who don’t have the means or expertise to centralize their operations or trim inefficiencies without harming their core businesses.
There are a number of title businesses out there that have turned to a model that relies on the optimal use of effective technology, staffing and training that aligns with what lenders are seeking (such as digital closings and/or RON, cybersecurity, etc.) and a workflow that relies as little as possible on manual or inefficient processes. Partnering with such a business can lead to immediate benefits, not to mention positioning the incoming partner for success when the market turns.
Of course, not every potential partner is right for the title business seeking a partnership. Demonstrated experience is important. Has the potential partner done this before? What were the results? Does that partner have equally tough questions for the inquiring firm? While it’s understandable that a business might not want to share every element of its “secret sauce,” it’s also critical that both partners considering a joint venture or other form of partnership understand how the other works and what each firm values and strives for.
The title industry can be a competitive place—sometimes inordinately so. But in challenging times, there are numerous opportunities to at least have a share of the business that is out there through partnership. But it’s important to go about things the right way. Just as a successful joint venture can lead to improved revenue and even new opportunities, a bad arrangement can sink a business or hurt its brand for future potential partnerships. Better to get it right the first time!
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