I don't do it.  It really makes very little difference whether they close or not.  We did the work, we spent our time on the search and we need to be compensated for it.  The only logic for discounting those that cancel is that there will be no liability incurred on the search if it isn't actually used by the client.  That would be meaningful if we actually built the potential liability in to the price of our searches.  Unfortunately, that is rarely the case these days. 

Think about this... if you do 2 full searches a day, five days a week, and the average policy issued is $200,000 - there is $20.8 Million dollars of potential liability on those.  There is now way to really estimate how many of those searches could result in claims, but we do know that about one-third of all searches disclose (or should disclose) title problems that need to be fixed (According to ALTA).  And you also have to consider that most claims arise within 5 years.  So add up your potential liability for all the work you have done for the past 5 years.  It is probably in the tens of millions of dollars, but even one claim can easily run in to the hundreds of thousands of dollars.  Are you adequately compendated for your liability?  We certainly are not. 

Due to competition, demands of clients to continually lower prices, and a lack of bargaining power on the part of abstractors, the fees we charge really only compensate us for our time and basic overhead costs.  We should all be building in some cost for the potential liability we incur, but that is just not realistic in our market.  However, if we were able to charge extra for this liability, it may make sense to reduce the fee on the orders that do not close and thus, do not expose us to any liability for potential claims.

Anyway, that is how I look at it and we do not discount our fees if the orders do not close.  We simply cannot afford to because there is no extra fee built in to the price for this potential liability. 

Best,
Robert A. Franco
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