To buy a house, you need to buy title insurance. The title company checks the history of the property you want to buy, searching to see if anyone has any legal claim to the property that might stop you from taking ownership, if their are unpaid taxes, and making sure that the person who is selling the property actually owns it and has the right to sell it. Sounds important, right? Important enough to cost upwards of $2,000.
The thing is, as this article from Forbes reveals, it's a bunch of malarkey. Though title insurance may have been important a century ago, when criminals could easily swindle naive purchasers and property records were difficult to sift through, nowadays it's an outdated relic. That wouldn't be such a bad thing if home buyers could opt out of it, or if it didn't cost so much, but here's the thing: states and mortgage companies mandate that buyers must get title insurance, and state governments fix the prices. So, while the cost of a title search has plummeted due to the ease of computer searches, the price paid by home buyers has doubled in the last ten years.
What's more, unlike 100 years ago, homes are now bought and sold relatively frequently, so the title for any given house is checked fairly often. You'd think that would lower the cost, since the title is checked every time the house is transferred. The house we're buying was bought by it's current owner seven years ago. She had to have the title searched when she bought it, so now we should only have to have to check for issues that arose in the last seven years, right? Wrong. The company charges nearly the same rate, even though their work is drastically reduced.
State law also forbids banks and mortgage companies from providing their own title insurance at reduced cost. So instead of being able to use HSBC or our mortgage company, who could provide a cheaper price because of their size and incentive to compete with other banks, we have to use a company that only provides title insurance and is effectively subsidized by the state.
One state, Iowa, has made title insurance by private companies illegal. Instead, Iowa runs its own program. Cost to home buyers? $110.