It’s tough out there. The average house flipper is now competing with institutional buyers and home buyers willing to forgo a move-in ready property in order to save a little money. Many flippers are focusing on distressed properties in order to make a decent profit, but a distressed property may have other unforeseen issues aside from making it liveable. A title search will determine that the seller has the right to sell the property – you may be dealing with an heir who does not have clear title or even clear ownership. A title search should uncover liens from creditors or taxing agents, or utitlity easements companies, etc. And all of those will need to be satisfied before you can sell the property.
Title problems may arise after you have purchased the property. Title insurance is exactly that – insurance against problems not caught during the title search. It could be prior mortgage, lien, or property restrictions. Those debts are now passed on to you! If the missed liens and judgements appear with your new owners, you are responsible.
According to Rocket Mortgage, “the cost of lender’s title insurance varies by state, but typically ranges from about 0.5% – 1% of the home purchase price. Owner’s title insurance is separate and costs a few hundred dollars”. There is no law that you must buy title insurance, but for many seasoned flippers, it’s a small price to pay for piece of mind.
To save money, Amour Title Company recommends a title binder or title commitment, which is specifically for house flippers. ” A title binder offers the same protections of a normal title insurance policy—but it allows you to pass the title insurance on when re-selling the home. This avoids having to do two title searches so close together, and paying for both of those title searches”.
For more information on title insurance and title binders visit Investopedia.