Do I Need Title Insurance?

Most likely, yes.

Although there are few instances where title insurance may not be worthwhile, in most cases, especially in the Bay Area, title insurance is well worth the (relatively small) investment.  

Allow me to elaborate…

When you buy a home, you may think you are buying the house:  the walls, the roof, the foundation and everything in between.  Ultimately, what you are really buying is title to the property, i.e., certain rights to use a defined piece of land and the property that is attached to that land.  These rights are limited by a number of things, such as city and county ordinances, property taxes, existing liens on the property, and so on.  

When a new homebuyer decides to purchase a home, and escrow is opened, the title company will research the title records for anything that may encumber the property — looking for limits to the new homeowner’s rights to the property — and they will verify that the seller holds clean title that can be transferred to the new owner. They will uncover things like those mentioned above — property taxes, existing mortgages, etc. — and disclose them to the buyer.  They will confirm that the seller really does own the property and has the right to sell it.


The title company (or its underwriter) will also offer an owner’s title insurance policy* to insure the owner against any items not previously disclosed to the buyer.  For instance, if an unknown spouse pops up in the future and claims that their partner (the seller) didn’t have the right to sell the property, the title company may be responsible to defend the buyer against these claims and to compensate them for any losses.  Likewise, if an undisclosed heir claims rights to the property, the buyer will be compensated by the insurer.

*Note that an owner’s title policy is different from a lender’s policy of title insurance, which protects the amount they lend.  The lender will usually require a borrower to purchase a lender’s policy of title insurance before they will lend.  There is often a discount for purchasing both types of policies from the same title company.  

An owner’s title insurance policy in the San Francisco Bay Area could cost $1500-$2500.  The median price for a home in San Francisco is currently $1,350,000.  In the grand scheme of your purchase, a cost of less than 1% of the home’s value to insure that the property rights are going to you is well worth the investment.  (Keep this cost in mind when calculating closing costs and build it into the price of buying a home.)

My advice: buy insurance! The money will be worth the peace of mind and avoid potentially huge losses down the road.

Also note that the party who pays for the title insurance policy varies from state to state, and county to county.  In San Francisco County, it is customary for the buyer to pay for their title insurance; this custom is incorporated into the default SFAR contract.  In contrast, in Santa Clara County, it is customary for the seller to pay for the buyer’s title insurance.  However, like many parts of a real estate transaction, this is negotiable. If you are paying for it, keep in mind that you have the right to elect which title company to use. 

Crystal Roberts Schip


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