The very first thing that I do after I have done my preliminary due diligence and determined that the property owner is willing to sell me an option is to have a title search done on the property's title by a seasoned title professional who has experience doing title searches in public records libraries for title insurance companies. I do this so that my title expert can determine if the property's title is in an insurable condition. Once I know the status of the property's title, I consider the following three factors before deciding whether to buy title insurance to insure my real estate option:
1. The property owner's background and reputation: Property owners who are considered sophisticated professionals, such as medical doctors, dentists, attorneys, engineers, and business executives, are generally more likely to be litigious than owners from different backgrounds. The same holds true for properties owned by business entities controlled by the same type of professionals. Also included in this group of owners to be wary of are owners who have a reputation for being difficult to deal with. If a property owner falls within this group, I insure my option with title insurance.
2. The cost of the option: When the option fee is $10,000 or more, I insure my option.
3. The purchase price of the property: I buy title insurance on my option when the purchase price of the property is $250,000 or more.
In case you did not know it, title insurance is not cheap! And that is exactly why I do not just go out and get title insurance on every option that I buy. For example, here in Florida, an owner's title insurance policy on a residential property valued at $175,000 costs $950. So, for options that cost less than $10,000 on properties valued at less than $150,000 that do not belong to sue-happy owners, I forgo insuring the option. And to date, knock on wood, I have never had an owner renege on our option agreement by refusing to sell the property after the option was exercised.
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