Evolution! You Can’t Stop It (Part 1)
“The title insurance-escrow/settlement industry is in crisis! And it is partly the industry’s own doing and partly the economy. The consumers, the public, the Realtors, the mortgage professionals, the regulators, just do not understand or appreciate the vital role we, the title and escrow professionals, play in a transaction.”
Heard it before? Sure, it is almost a theme song. Sad, huh? Although it has been said many times in many ways for decades, Sue Hershkowitz-Coore , the key note speaker at the ALTA meeting in October, 2011 reframed the industry theme song. She said that every time that comment or any similar comment is made the industry is blaming someone else for its own problem. She notes that whining and blaming other parties make a negative impression that may affect your ability to do business. In her opinion blaming others only makes you look bad. We all know the blame game has not gotten the industry anywhere closer to being appreciated or understood yet. So, now, right now, vow never to make the blame statement again. Replace the negative blame statement with a positive statement of the value that you, your company, and the title industry provide at each and every real estate closing! Have a 30-second, 3-minute and 30-minute “promotional” response ready on the tip of your tongue. Whenever you are asked what you do, boom, you have a positive, proactive response ready. If you doubt this will work, look around. Positive and consistent messaging is the foundation of persuasive communications. Realtors have used this technique for years and it works!
The industry cannot reverse decades of blame slinging, but it can make a positive change every time you have a closing, telephone conversation, personal meeting or use social media to connect. Creating a positive impression can be as easy as adding a tagline to your e-mail signature: XYZ Title Agency, “Preserving the integrity of real estate.” When you have a closing, it is an opportunity for you to build your client base. Proactively sell your agency and the quality of the service you provide. Even if one of the other participants in the transaction causes problems, you don’t have to suffer for someone else’s lack of professionalism.
You have all dealt with blaming people, but what about blaming the economy. Is the industry really in crisis because of economic turmoil? Yes, business is slow and the future is uncertain, but don’t just accept this passively. Ask yourself, “What should I do?” Be a realist—wishing and nay-saying will not improve the situation. Accept that the market has evolved and anticipate that it is likely to change again and maybe not for the better. As an example, the refinance market has consolidated. These days the national lenders (Bank of America, Chase, Wells and others) have established strict terms and conditions for any agency doing business with them. Sure, you and many other agents may have a piece of that business now, but long term, will you be able to grow your share or will your share diminish? No one knows—the reality is uncertainty for local agents.
However, lenders are moving forward with certainty. They have the buying power (orders) to demand and receive preferred pricing and unique service from every vendor and supplier. They demand vendors to be licensed in all states, that they have a single point of contact, receive electronic orders (not just e-mail), and also demand lower, much lower, prices. Today, most of the underwriters offer lower and direct rates to qualified agents and through direct operations. This is not a conspiracy to eliminate agents. Look at it as evolution.
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Embrace the Change: You May Not Have a Choice (Part 2) ORIGINAL Post on Apr. 6, 2012
You see changes in many aspects of your professional and personal life. There are times you benefit from change and other times that you suffer. But again, be a realist. Most of the time you cannot stop or even slow down the change. Knowing the dynamics, the history, and the facts may or may not make change easier to cope with, but you will move forward faster if you choose not to be a victim.
Every time you personally purchase something at a preferred price—say a shirt, dress or automobile—a price lower than it was five year ago or even just one year ago—you are the beneficiary of evolution. Yet there are also many victims. Those forced to provide goods and services for less have no choice but to charge less or go out of business. We see this everywhere. Our health insurer tells us what doctors and hospitals we can use. They tell the doctors and hospitals what they will pay for the services. Here the doctors and hospitals can accept less for the service or lose patients. Our homeowners and auto insurers tell us what company we must use when we have a claim and they tell their preferred providers what the insurance company will pay. The providers really do have the choice to accept the reduced fees.
There is a unique concept about business evolution—the theory of “high volume equals profits.” Every one of us would jump at the idea of landing a $5.3 billion annual contract. You are certain you would make money—a lot of money—with that volume, right? At high volumes your expense curve is dangerously close to your income curve, so you must monitor your expenses and processes because any trend in the wrong direction could mean disaster—and it could happen overnight.
A perfect example of a company watching its expense curve is Walgreens, the nation’s largest drug store chain. A few years ago Walgreens had a $5.3 billion annual income stream from Express Scripts. Then Walgreens announced it would not renew its agreement with Express Scripts claiming the terms and low fees demanded by Express Scripts would not allow them to make a profit. Among other things, Express Scripts insisted on unilaterally defining the contract and rejected Walgreens’ request for advance notice if Express Scripts was going to add or transfer a plan to a different pharmacy. Walgreens fired a customer that provided approximately seven percent of its business. As if that weren’t bad enough, a month later Express Scripts announced plans to acquire its largest competitor Medco, virtually eliminating Walgreens’ options. But, Walgreens will move forward.
The “high volume equals profit” theory does not always work. Neither does subsidizing one segment of your business with the revenue of another segment. Walgreens, by its size alone may have been able to absorb the loss, but chose not to run the risk. Walgreens would have to carry all the fixed costs associated with the ability to provide that volume and it assumes great liability when it fills a prescription. Walgreens cannot provide a service if there is no potential reward. All Walgreens would have is the guaranteed risk and the income and reward would be beyond its control. It could be a bad business model even if it is the only business model.
I trust this sounds familiar to you as a title/escrow agent. If it doesn’t it should because the title/escrow industry is in the same position as Walgreens. The parties that control your business, the large financial institutions, have demanded and received preferred pricing and other benefits for the refinance business. The title underwriters have agreed to the terms and provided the products. Only time will tell if this benefits both the lenders and the insurers. The financial institutions also have some risk. All of the insurance risk is now being spread among the four families of underwriters (Fidelity, First American, Old Republic, WFG, and Stewart). The lenders have distribution concerns and they too must perform a risk analysis. How do they minimize their concerns and spread the risk?
This is a problem that cannot be solved by independent agents or regional underwriters. The independent agents only have the same underwriter population to choose from. The regional underwriters could be wiped out with a single claim. So, let’s focus on you, the independent agent. How do you proceed? The price of the title products you offer is going down. Part of your market—the refinance segment—may disappear. The price for all the services you provide is being driven down. The liability you are assuming is increasing and all of your expenses are increasing. There are only so many expenses that can be reduced before you look to your labor costs. Knowing the income potential for 20, what infrastructure—including staff—would you put in place to accommodate your business potential? Can you afford to shed some overhead costs? Can you learn by replicating methods of other agents similarly situated? Can you join forces with another agent or merge/sell?
Remember, you are not a victim. The underwriters do not have a systematic plan to eliminate agents. It is not a revolution to destroy the agent population that has consistently provided 50 percent of the title revenues. It is an evolution!
Remember: be a realist! Gather the facts, know your professional and personal financial tolerances and act appropriately. There is no need for more victims.