Is a Joint Venture the Best Fit for Your Title Company?
As the constantly changing real estate market continues to ebb and flow, many professionals are looking for ways to add additional revenue. Title agency ownership is often a topic of discussion among brokers, lenders, attorneys, and entrepreneurs — and embarking upon a joint venture may seem like an attractive option.
While the joint venture business model has its benefits, this type of arrangement is not without significant risks. To help you determine whether or not the benefits outweigh the risks, let’s take a closer look at joint ventures and their inherent pros and cons.
What is a Joint Venture?
In a joint venture agreement, two or more parties or established businesses pool their resources and talents to achieve a particular business goal. Joint ventures allow people to access new markets and tap into complementary skill sets. However, the parties involved have no legal responsibilities to each other beyond the scope of the agreement.
In the title industry, a joint venture happens when a Realtor® broker, lender, builder, developer, or other professional partners with an existing title company, forms a separate joint venture with that title company, and then directs their current clients to the joint venture company. In other words, the title professional does all of the title and closing work, the other joint venture partner brings the customers, and both financially benefit via a negotiated joint venture business partnership.
What are the Pros of a Joint Venture?
Those who have an interest in owning a title company to generate revenue, but don’t have the time or desire to run the company, may contemplate launching a joint venture together with an existing title partner. For these individuals, the benefits of the joint venture model may include:
- Hands-off approach – You are not required to perform any title production or settlement work (the title partner will do this);
- No direct hiring or firing responsibilities – The title partner commits to the decision-making role, although you may still have a say in day-to-day operations.
- Return on investment – You maintain the sales and marketing role to send your clients’ title orders to the joint venture company and receive a percentage of the profits in return, based on ownership percentage.
By working with an established title company, you may be able to accomplish business goals that would have been difficult to realize on your own. Although this type of arrangement seems straightforward, however, there are other factors to consider before agreeing to a joint venture.
What are the Cons of a Joint Venture?
One of the biggest drawbacks of the joint venture model is that these arrangements typically have a higher level of risk than with other business models, such as franchises. Specifically, the potential cons of title company joint ventures include:
- Partnership woes – You may not have a relationship your title partner, leading to higher risk in the event that the partnership does not work out;
- Less control – Trusting your business partner to produce the level of quality you expect may not yield favorable results; you must also relinquish control of managing staff on a daily basis;
- Limited profits – You can earn only as much profit as the title partner produces; if the partner does not run a tight ship, they will not produce the level of profit you were expecting;
- Limited ownership – With a joint venture, you own only a percentage of the company, versus 100% ownership;
- Your reputation on the line – Any illegal or unethical business practices carried out by your partner result in risk for you and your reputation, by association and possible loss of your title producer license, if you have one;
- Reduced buyout potential – You must be a licensed title producer in order to buy out your partner if they want out of the partnership. Without this license you cannot operate your title agency;
- Security issues – If your title partner does not have the best quality technology and security in place, it can increase your risk of fraud and potential title claims.
While the concept of boosting revenue without adding a significant amount of work is appealing and seems ideal, you may find that less work means less control over your business — which causes more risk and puts the joint venture agreement in jeopardy.
Fortunately, there is another option for owning a title company that mitigates your risk and eliminates the most common barriers to entry.
How Does Proliant Give Your Title Company an Advantage?
Proliant Settlement Systems was created to dramatically simplify starting, owning, and operating a successful title agency. Our private-label franchise system allows you to provide your customers with full-service title solutions. The best part? You have 100% ownership of the company — right down to the name on the door — while we provide the back-end support.
That means everything from software and technology infrastructure to processing and consultation is provided by Proliant, but we give you full control over your assets and brand. This allows you to build the business and profit from it, sell it, or even transfer ownership to a family member upon retirement.
A complete business and IT infrastructure, as well as technology security, helps your business run smoothly and reduces risk. Plus, we offer a host of title production services and both initial and ongoing training and support. What’s more, we reduce staffing needs and increase efficiency with our proven process and software.
Here’s how the Proliant Advantage gives you the best of both worlds:
- Optimize Revenue per Employee – Eliminating 60%-70% of traditional staffing needs by outsourcing complex back-office functions retains a high percentage of overall revenue;
- Variable Expenses – Fees to Proliant are almost entirely per transaction; as volumes drop expenses follow (time of month, seasonality, interest rate changes, acquisitions, decreased sales, office closures, etc.);
- Cost per Transaction – Outsourced service fees, when taken over the full business cycle, are less expensive than the same services performed with title company staff.
TITLE AND CLOSING LIABILITY
- Exposure to Agent is Reduced – Proliant assumes liability for its errors in any functions it performs;
- Automated Workflow Management – Paperless checklist system requires completion of critical tasks and documents;
- Quality Control Checkpoints – High-risk decision points are reviewed by Proliant staff for underwriter compliance;
- Post-Close Best Practices – Proliant performs recording (where applicable), post-close update, release tracking, etc.
ESCROW ACCOUNTING LIABILITY
- Wire Fraud Mitigation – Proliant performs multi-step initiation and approval process. Optional third-party integration for secure delivery and receipt of wire instructions;
- Separation of Duties – Key functions are performed by separate individuals: Wire initiator cannot approve wire; check signer is separate from account reconciliation; check disbursement is separate from check printing, etc.;
- Daily Reconciliation with Positive Pay – Proliant utilizes industry leader Rynoh software for escrow account integrity;
- Monthly Submission of 3-Way Reconciliation – Extensive monthly reconciliation reports are automatically provided to the underwriter and agent;
- Easy Access to Real-Time Reports and Data – While escrow accounting and reconciliation functions are performed by Proliant, the agent has full access to all data and reports dashboard.
- Add New Locations/Offices/Joint Ventures – Minimal staff requirements allow for easy expansion without additional management;
- Flexible/Adaptable Geography Specific Title File Workflow – Local closing customs and practices knowledge are built into the system, not dependent upon any one individual.
There’s more than one way to own a title company, by choosing a business model with a proven record of success, like the Proliant Settlement Systems franchise, is the best way to gain a winning edge — and create stronger client relationships.