The Key to Successful Title Joint Ventures: Choosing the Right Partner

by Bill Cotter

Title Alliance has developed title insurance agency joint ventures since 1983. Our very first joint venture finally closed in 2007 (24 years after opening) when our original partners began retiring – the normal life cycle of any business. That statistic alone is very meaningful: it is a tribute to our partners and their long-term vision. They recognized the need for excellence in service for their clients – their agents, and for the clients of their real estate company – the buyers and sellers who make their businesses prosper. Building a company on good service and a long-term vision yields excellent profitability and longevity.

Title Alliance specializes in co-creating branded, separate and distinct Independent Business Units that enhance the value of our Partners’ businesses by providing efficient and effective ancillary title services to their clientele. This is our differential: This is “Who We Are and What We Do.”

Each venture is its own unique Independent Business Unit, and as such is worthy of our best efforts to guide and manage it. We currently have 35 joint ventured title operations, most of which are thriving in spite of the poor real estate market conditions. So what is it that we do – our partners and us –that allow us to have the strong success that we have had? What differentiates us from some others? We believe it is our Partner selection.

Our target partners are Trend 500 Realtors, as well as banks, credit unions, mortgage brokers and builders who have been in their respective businesses for ten years or more, have excellent reputations and are large enough in terms of probable volume to support at least two full time equivalents in their title joint ventures. We only want partners who intend to obey the law: not just RESPA, but the various state laws that might be applicable.

We constantly find ourselves replacing other title-side joint venture partners: most of our ventures are with real estate companies or lenders that are replacing their previous title partner – at times because of fear that the partner is not being RESPA compliant, but most often because the Realtor or lender does not feel they are the most important item on their title partner’s “To DO” list each day.

Many years ago a commercial banker I knew and admired said that commercial lending is all about the “Three Cs:” Character; Capacity and Collateral. When we began envisioning Title Alliance we decided on our own “Three C” criteria: Character; Capacity and Commitment. These have served us well since 1983, and will serve you well should you wish to follow them, regardless if you are the potential title-side partner or the potential real estate/lending-side partner.

The first “C” is Character. Character represents that which is indelibly engraved in the very soul of the individual. A person with “Character” is one who possesses moral strength you can count on: someone who will not waiver for momentary gain. This is what you want in a business partner. You may first look to capacity and say: “This guy is a find,” but if you are not able to trust him or her, then the person is a bad choice for a partner. Choose companies with whom to work that are well known for their ethics and fine reputation: “He who sleeps with the dogs wakes up with fleas.”

By Character we are also looking for someone who is communicative and willing to listen as well as willing to speak. Too often a partner does not speak up when they are dissatisfied, and if they only would be more communicative, the overall relationship would be enhanced. We survey our partners each year and try to ask probing, open-ended questions that help us manage better.

Several years ago, for example, our partners advised us they were basically unhappy with our profit and loss reporting. After probing we found they didn’t like the degree of detail and they didn’t like our format. We tested several approaches, and now we send our statements electronically by the tenth of each month in a very simple format that allows the Partner to quickly see the key items they look for, such as order count, closing count, gross revenue, net profit and net margin. Because the information is in Excel, they can do “what ifs” should they care to. If they want more detail, they know they can get it from us by making one phone call.

Listening, as we all know, is a critical element to good communication, and that is why we have regularly scheduled meetings with our Partners. These meetings allow us to listen and to discuss issues important to the Venture. Although our operations are almost all LLCs, and in almost every case we are the sole Managing Member, the fact is that the input from our Partner is invaluable in building a strong company. We meet with each Partner monthly for at least the first three months and then quarterly thereafter in a “Board of Directors” meeting. There is a set agenda (that will vary from Venture to Venture) and always a “New Business” category to allow for input from our Partners.

Our budgeting process is also very Partner-centric. We manage our annual budgeting process by meeting with our Partners to gather their views on expected business conditions. We then help the Manager of the Venture create a budget and a formal Marketing Plan for the next year. After we run the budget through the process we meet again with the Partner and get their feedback. The end result is a greater commitment on the part of all three parties: the Venture’s manager, ourselves, and our Partner.

Capacity is the next “C.” Capacity implies more than just a level of business volume available: it includes the ability to deliver that volume. People always ask “What’s the magic number?” I can only say that I have been actively doing this for 27 years and have been in the title business since I was 16 – which is a very, very long time, and I have yet to be able to identify “the magic number”. The only way to tell if a venture has the ability to do well is to put the information into some sort of a Proforma template and look at it. Our template requires “stressing” so we can see the break-even point, which isn’t a bad idea either.

The key to the Proforma, however, is in assessing if the Partner can deliver. There have been many venture opportunities we have seen where the total available business to a venture was large enough to more than be profitable, but the ability to deliver the business was not there. Why not? It can be as simple as the proper chemistry is not there between the Realtor broker-owner and his or her sales associates. It more usual that the historic delivery system has someone making the referral other than the Realtor or lender and therefore creating a joint venture with a Realtor or lender simply will not work. The capacity is really not there.

The most frustrating, however, is the case where everything should be working fine, but we find the Partner is really unwilling to attempt to push for the business. This introduces our last “C:” Commitment. There must be a reason for a loan officer or a real estate salesperson to give their business to an in-house title operation. The quality of the service must be superior to service available elsewhere. That is a real fact of life that few understand when they first set out to create a title operation: some feel they can “short-sheet” the agents or LOs by providing inferior service delivery. That never, ever works. Top business analysts, like the late Weston Edwards, have proven time and again that a joint ventured title – or mortgage – company must provide the best service, not the least service. In addition to that the Partner has to expect to get the business. Absent that expectation, the venture will not succeed.

One of the first things we do, after accessing the Partner’s real commitment and the Proforma is to do a Focus Group with the agents or LOs in order to better understand their vision of what they want in “their” title company. We write a summary of our findings and return it to those who participated and ask for feed-back to ensure we got it correct. We then meet with the primary sponsor – the Partner – and ask if he or she will commit to doing whatever it takes to have the items requested on the list from the Focus Group.

If so, we create a Vision Statement from that list – a statement the Partner and we each commit to achieving. If the proposed Partner is unwilling, then the venture will most likely fail, and there is no point in us going any further. Commitment! Commitment to Excellence! That is what makes a great Partner. One of the things we have learned over the years is “A.B.L.” – always be leaving. If the proposed Partner does not have the Character, the Capacity or the Commitment – get out!

I have been privileged to work with some really wonderful Partners. Our “Capture Rate” from the independent sales associates and Loan Officers in our joint ventures is about 75% on average. We keep pushing for 100%, as well as pushing for as much outside business as we can get. That constant effort keeps us at the top of our game and keeps the venture a positive and profitable operation for all involved and all the customers of the venture. I understand, based on published surveys, that our joint ventures have unusually higher capture rates than most.

What differentiates? I believe the difference is the Character of our Partners and the Commitment we each bring to the table.

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