There is a saying in the Boxing world that when your opponent hits you, you have two choices. The first is to collapse like a wet noodle, and the second is to hit them back, but harder. If they hit you again, come back out and hit them even harder. Continue until you win.
Wasn’t 2021 a wonderful year for the title industry? Almost everyone rode the wave of massive transaction volumes, new technology which fostered efficiency, and unprecedented margins.
Then it stopped.
Many title agencies are now in a fight for their very existence. Like it or not, we’re way past the first round and time is not on our side. Rising interest rates have led to transaction volumes falling off a cliff. No sector or business channel is fully immune. While no one has a crystal ball, we’re not going back to 2021 volumes anytime soon. Almost all title agencies have been hit hard. So, now what? Will you be a wet noodle or a fighter?
There are lots of ways to fight back. They fall into two basic buckets, namely:
- Lower costs. Less volume means lower revenue which ostensibly requires a corresponding reduction in costs if profits levels are to be maintained.
- Grow revenue. Businesses do not necessarily need to accept lower volumes lying down. They can also find fresh ways to improve their top line.
Adversity can inspire creativity, and this is the perfect time to think about doing things differently.
“If you do not change, you can become extinct!”
― Spencer Johnson, Who Moved My Cheese?
Many in our industry made fortunes these past few years, riding the wave of high volumes fueled by artificially induced low interest rates. They got their treasure in part because of the hard work done by their employees. Was that treasure shared? Is it fair that the same people who helped create the fortune are the first to suffer when the tide turns?
As managers and owners, please pause and think long and hard before firing someone.
Firing people should always be the last resort. Aside the emotional devastation potentially caused to the people being laid off (and their families and their kids’ ability to go to college and their ability to make ends meet and pay their mortgage and so on…) there is also sound business rationale worth considering. As sure as the sun will rise tomorrow, a time will come when title agencies grow again and need to hire. They will look to the same talent pool they previously let go. Employees will remember what owners did in this time.
Some title firms have gone on and on for years about their ‘family’ culture, but when the chips are down all that seems to go out the window. Do those making the tough choices of who to keep and who to let go see their actions through a lens of compassion? Are they recognizing that their decisions can be devastating to the lives of people who have devoted their energy and careers to further the company’s vision? Are the bosses sharing the pain or do their actions speak of tokenism (“Sorry sir, due to cutbacks our corporate jet no longer offers champagne, but we have excellent beer”)? Loyalty should matter.
Empathy is a two-way street. Many title leaders struggle with having to do layoffs. They know the harm it causes to the lives of people who have been loyal to them but also know they have to find a way to keep the business going. The situation can be emotionally fraught regardless of which side of the conversation one is on. How title businesses conduct themselves in these troubled times says a lot about their true corporate culture. It doesn’t take a lot of creativity to just fire people without much thought.
Layoffs are one way to immediately lower costs, but there are other options. Prudence dictates that hitting back by exploring other cost reduction options should be the first order of business.
Costs can also be lowered with a cleverly designed BPO (Business Process Outsourcer) strategy. When we analyze a title company, whether as part of a M&A transaction or as part of our advisory services business, one of the first things we look for is whether the company is using a BPO. Outsourcing back-office functions creates a variable cost model, which the M&A market likes, but also is something which helps level the cost base playing field between independents and Big Title. Big Title figured this out years ago and have large resources offshore.
Independents can now do this too. We can show you who to go to and how it can work. As with many things, caution and prudence are in order. The last thing you want is for someone who talks a good game but is a world away learning how to do title functions on your dime. We know the good from the bad – – the real from the charlatans–, and we routinely introduce our clients to the best BPO providers out there.
Outsourcing may seem counterintuitive when you are trying to keep your staff fully employed. After all, offshore workers are performing tasks which could be done by existing staff. The answer to this paradox revolves around the value of efficiency as well as the opportunity to repurpose existing staff roles. Quality Control is a necessity in any BPO strategy. Other fresh roles can emerge. Ultimately, the best way to keep your staff employed is for the business to be profitable. Implementing a well-designed BPO strategy will help the bottom line.
Another cost cutting measure is to evaluate the agency’s underwriter relationships and splits. One of the biggest expense line items for a title agency is underwriter remittance. The big underwriters compete with one another. True, they like to talk about everything except their splits, but they are in fact quite similar, and the same ALTA policy is issued. We find agencies with off market splits so often that we set up a GPO (Group Purchasing Organization) just so that we could aggregate our clients’ underwriter spend and get them a better deal. We maintain a master database of who got what splits with which underwriter in different geographies based on various product mixes and volumes. We’ve been building this for over 12 years. Evaluating splits (or joining our GPO) can improve an agency’s bottom line.
Most business problems can be solved by improving the top line. Fighting back by growing revenue can only help. We’ve seen quite a shift lately in how title firms view ‘sales’. The old days of glad handing, donuts and ‘happy’ (unhappy?) hours have yielded to the advent of salespeople as technicians and the development of a culture of sales. We are seeing more and more highly successful title firms with no formal ‘sales’ people. Instead, they have created a mindset of sales such that every staff member plays a role in selling one way or another. Everyone is always selling all the time. None of them are volunteers and all of them have their own network they can tap into if managers and owners give them a reason to. Escrow officers and closers are ideally positioned to sell but require a structure which empowers and incents them. This is not hard to set up (and we can help).
JV’s are a great way to grow business. A compliant JV can produce meaningful, consistent and sustainable volumes. Set up correctly it can produce fresh profits.
The concept of another entity wanting to participate in the economic benefits produced by their activities is hardly novel. Any entity whose activity produces a reasonable and steady volume of title orders is fair game.
One popular target for JVs is Realtors. This is a growing trend in part because Realtors’ value proposition has diminished in the marketplace. Technological advances have contributed to a slow reduction in the commission rate which is considered market. New and clever business models impacting realtors seem to crop up all the time. Many Realtors wonder how they can sustain their income levels. At the same time, Realtors often look at title with envy. Many don’t even understand it and see the entire process a form of tax! Realtors seem quite enamored with the idea of making money from title activity (notwithstanding the ever-increasing penchant to view RESPA as optional)! A JV with a Realtor can be a great idea as it creates stickiness with little or no sales effort by the title partner. Realtors like having a say in how their own deals are processed. Remember, for Realtors each deal is their paycheck.
In the past (i.e. last year when volumes were going through the roof) some title firms were reluctant to use their valuable staff in a JV. Why only derive half the income from key staff’s efforts when they can get 100%? That made some sense then, but less sense now. Today, getting the order in he door is what counts. Making some money is better than making no money.
‘No One Ever Went Broke Making a Profit’
― Charles Kaiser Jr.
JVs are so much of a growing trend that we have a separate division solely dedicated to standing them up. Our team is experienced and includes the best RESPA/AfBA attorneys available. We support the entire process, from beginning to end including workflow design, production system evaluation, underwriter appointment, vendor selection and more.
This is a time for tough decisions. Title agencies need to figure things out fast.
One decision making tactic involves thinking back to 4th grade algebra. Always solve a problem by starting with what you know to be true. In the context of title, it’s true that the market sucks now. It’s also true that there is always a baseline of business no matter what (People get married, divorced, die, have kids etc. and sometimes buy, sell or refinance for reasons that have nothing to do with economic factors). It’s also true that someone is going to get the business that is out there and it might as well be your firm. It’s also true that strong independent agencies can do things that Big Title cannot. It’s also true that not all market segments are impacted equally by the times we are in.
Some layoffs may be unavoidable. Some employees have not performed well. There is no one cure all for the challenges faced by title agencies today. However, as managers/owners, you can also consider new strategies, revisit how you run your business, expand in directions you had not considered before, rethink your operations and more. You can fight back. You can play the game differently and win. We can help.
It’s smart to be outwardly focused (new creative solutions etc.) when others are inwardly focused. Some of the changes made now will reap rewards for years to come.
Fortunes are made in a down market.