Selling a home within 2 years? You need a Binder.

ADVICE Josh Taylor. October 29, 2024

If you plan on selling your home within two years of purchasing it, the title binder is an important concept to understand.

If you intend to stay in your home for more than two years, a title binder is probably unnecessary. However, if you're considering flipping or relocating your property, then obtaining a title binder is recommended. It's worth noting that a title binder is a cost-saving tool, and I explore how it works further in the following.

Title searches incur costs every time a home is sold or purchased. Purchasing a title binder upfront can save you significant money on title fees going forward. With a title binder, the buyer can resell the property with a policy of title issued at a much lower cost than starting from scratch. Title insurance is intended to safeguard the buyer or lender from any undisclosed defects in the title. Upon paying the one-time premium, the title insurance company delves into public records, creates abstract titles, and issues and sells title insurance after a thorough search of the property's title.

How Does a Title Binder Work?

Let’s take a look at a real-life example of how a title binder functions and can help save money.

Hypothetically, this buyer is an investor who is purchasing a home to fix-up and flip for sale within one year. This buyer elects to purchase a title binder upfront. Now, when the time comes to sell this home, they will be able to use the same title company that was initially used for the purchase, and they can avoid paying to have the title searched again for their new buyer.

EXAMPLE: $350,000SALESPRICE Buyer plans to sell within two (2) years for $450,000 In this case the basic rate is $1,187.00. The binder fee is $118.70, or 10% of the basic rate. The buyer sells the property two (2) years later for $450,000. The basic rate for a full title policy at that price would be $1,373.00. The buyer now pays the difference between the two basic rates, i.e., $1,373.00 - $1,187.00 = $186.00.

What Else Should I Know About Title Binders?

The above information covers the high points of a title binder, but there are some other things that you might want to know. For example, the standard term for a title binder is two years. However, some companies will extend the term for an additional year at a cost. Additionally, title binders are not applicable to all real estate transactions, and in fact, they only apply to buyers.

Here are some other quick facts:

You will be required to use the original title company from whom you purchased the title binder when the property is sold.
Be sure to communicate that you have a title binder to the listing agent. They may not be aware that you have one.
In California, it is typical for the property’s seller to pay for title insurance. Remember: a title binder can help avoid duplicate fees.
A title binder is not the same as title insurance. Put simply; it is a commitment to issue an insurance policy.