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The Post Refi-boom Cliff
by Robert Franco | 2007/04/10 |

When the refi-boom was in full swing many clients began asking for lower prices in return for the volume of work they were sending their abstractors. It was easy to accommodate that kind of request when work was plentiful. And, as many found out, if someone refused to lower their price, there were many others out there willing to work for less to "expand" their business.

Now that the volume has declined, how many of those clients have called you to ask you to raise your prices? Obviously, that is a rhetorical question; we all know the answer is zero.

A smaller profit per order may have worked out well when you had enough work to make it up, but now that things are slower, the smaller profit margin is not feasible. Still, how many abstractors are willing to raise their prices and risk losing what precious little work remains? Another rhetorical question.

I warned about this in a post on the Source of Title forums on May 31, 2006:
The problem with that arrangement is that when their "volume" drops off, like has happened to many companies recently, they don't want to pay you more. It is hard to raise prices again - since there is NO loyalty in this business anymore they will just drop you for someone else who is willing to pick up a few more orders at the discounted price. When things slow down, someone always needs the work.

Besides, do you think they offer their consumers a discount when they are busy? I don't think so.

Hypothetically speaking, if you need to make $200 a day, just to pay your bills, you can do that with four current owner searches at $50 each. If you can get ten current owners a day at $35 it may make sense to lower your fees. Thus, when a company offers more volume for the lower fee, many may jump at the chance.

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However, when the volume is no longer there and you are back to doing only four searches a day, because the refi-boom is over and the housing market is slowing down screeching to a halt, you are only making $140 per day. That is no longer enough to pay your bills, but what can you do about it? Now you need the work more than ever - can you risk raising your price and losing more work?

I warned of this even earlier, in a post on the Source of Title forums dated November 16, 2004:
This is one of the biggest problems with lowering fees for volume. Once business slows down it is very difficult to raise them again, especially if the competition has had to come down to meet the lower prices. Also, when things slow down, you need the money more than ever, so its hard to risk losing ANY client by raising fees.

It is logical though, that when volume drops - fees will rise. It will take more money per order to cover fixed costs. Its just going to be tough to be the first one to do it.

I hate to be the one to point this out, but abstractors, as a group, are some of the poorest business people on the planet. What other business has such little regard for their services and value that they allow their customers to dictate very aspect of their business? Clients demand, and often get, lower prices and faster turn-around times. Clients tell the abstractors how to do their jobs and require them to carry professional liability insurance. Clients impose their own standards on abstractors despite the well established legal standards that exist.

As a prime example, one company has announced a "restructuring" where they have informed their abstractors that they will not be able to pay delinquent invoices until 2009, and to get paid at all you have to agree to their terms. Rather than insist that this is unacceptable, and cut them off to begin collections actions, some are actually going along with the plan.

From a post on the Source of Title forums dated April 8, 2007:
If you don't go along with their restructuring, you get paid nothing. I would rather not lose the $1500they owe me, but rather continue to do work for them and be able to keep them on a short leash with the 5 day payment system and recoup part of the receivables in the long run. If they owed us more, it might be a different story.

Going along with an absurd "restructuring," such as this one, is damaging to the entire profession. It helps a client, who cannot pay their abstractors until 2009, to remain in business and continue to do work that should be going to a more reputable company that actually pays their abstractors. It makes absolutely no sense to empower a client to continue to abuse their abstractors when there are clients out there that could do that work and provide revenue to hard-working abstractors. And for what? A chance that they will still be in business in 2009 and maybe make good on their promises?

Abstractors have very little foresight. They choose to disregard all the warning signs and focus their attention on today. It is almost as if most expected the good times to last forever and they failed to plan ahead. With so many abstractors demonstrating such little business sense, abstracting prices are at a dangerous level. This will be the year that we see a major correction as many will be forced out of business. The current volume at the current prices cannot support the number of abstractors in the marketplace.

Abstractors decided a couple years ago to go base jumping off the post refi-boom cliff without a parachute. The time to think about safety was back when the clients began demanding lower prices, when their feet were still planted solidly on terra firma. Now that they are in free fall, I hope they have enjoyed the ride. Its almost over!

Robert A. Franco


Categories: Abstractors, Billing Issues, Competition

1344 words | 2486 views | 7 comments | log in or register to post a comment

I started my business five-and-a-ha...
I started my business five-and-a-half years ago with a home computer, a fax machine and $500.00 to my name. Our growth since then has been steady even though the "boom" is long gone. Through it all, we've always delivered what I consider to be a quality product in a timely manner and have never had to reduce our rates to get work. We are blessed to work with clients who know the value of a thorough title search.
by Scott Perry | 2007/04/10 | log in or register to post a reply

I have been on my own for 2 years n...
I have been on my own for 2 years now, loyalty is one thing that i have heard afew people complain about when they have lost clients due to someone else offering a cheaper price. If everyone got together and offered the same prices as far as independants go then no one would have to even think about loyalty from a client. If everyone in a specific county offered the same price alot of issues would become simpler. I think that instead of looking at the person next to you as your competition but rather looking at them as more of a partner would make the marketplace a more fun environment to work in 
by CJ | 2007/04/17 | log in or register to post a reply

isn't that illegal to set prices?
isn't that illegal to set prices?
I thought it was illegal.
by JL | 2007/04/17 | log in or register to post a reply

Yes it is illegal to all agree to s...
Yes it is illegal to all agree to set service fees, it is an amazing suggestion to say the least. Maybe just being in tuned to good business practices and communicating a good relationship with the clients is a better suggestion. Flexability is the answer as the treads in the business change so must you and it must not be shown in your service to the client which I am sure is always at the higest standard.
by Matthew | 2007/04/17 | log in or register to post a reply

Robert: The correct information abo...
Robert: The correct information about the re-payment agreement is not just that they will might pay by 2009- no- there are to be 4 equal payments - two in each year , making the first payment due in May of 2007- and as such it works out much better than a bancruptcy that only returns 10 % in an unknown time frame in the furture-if at all.

I do not think I made a poor business decision by accepting this, rather I just might have enough money this year to renew my SOT subscription and listing.I certainly did not seek out a company that was a poor paying client- it just happens, and I don't thank that makes me the "bad" abstractor or means I have poor business skills- I am just doing what I do best- and I do not cut my prices either- just look at my posted rates- nothing like the cut rates that are discussed on the site. I might not get the $25 current owner with copies of all easements and covenants for 60 yurs, but then- I don't want that either- by doing that it allows the time required to produce a quality title for the companies I do work for
by Steve Meinecke | 2007/04/17 | log in or register to post a reply

Well, Steve, I hope for your sake i...
Well, Steve, I hope for your sake it was not a bad business decision. Personally, I require payment every month and I refuse to do more work for a client with a delinquent invoice. I don't think I would accept two payments per year under any circumstances. But, like you said, its a business decision. We each have to make our own business decisions.

My point, in case you missed it, was that by continuing to work for a client like that, you are preventing another client from picking up that work that would probably pay their abstractors within the current year. What else can I say, abstractors continue to accept this treatment... and ask for more. "Thank you sir, may I have another."

I would much rather see the abstractors treated like professionals; adequately compensated in a timely manner for their skills. However, if the abstractors don't insist on it, or even expect it, it is not going to happen. The willingness of the abstractors to accept incredulous payment terms just encourages more and more clients to push it further. This payment plan is certainly proof that there is really no end in sight. It does not bode well for our future. I wish you luck with it (honestly, I do), let us know how it works out. But, I would expect more of it in the future because cash-flow is drying up for a lot of our clients. Will you be willing to carry them all to 2009?
by Robert Franco | 2007/04/17 | log in or register to post a reply

Just to give everyone a little upda...
Just to give everyone a little update on this. We have been dealing with the same company that has owed us a large amount of fees for quite some time now. They had made an agreement with our corporate attorney to pay our bill in full within 5 days and we would continue to do work for them. We had started to get new work from them and were told it would be paid in 5 business days, well, I can assure you that none of that has happened !! Not one of the orders that we completed were paid in 5 business days. It was more like 15-30 days for the couple of new orders we received. Have we seen the full payment we were supposed to receive in 5 days,no we haven't

We have now turned everything over to our corporate attorney for collections and we will be taking them to court.

Watch yourselves everyone.

Best of luck to all of you!!

by Dawn Bath | 2007/04/18 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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