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Compass acquires another title company

Deal for LegacyTexas Title marks third title and escrow acquisition in the past year

Real estate brokerage Compass announced Tuesday that is has signed an agreement to acquire Dallas-based title insurance company LegacyTexas Title Co., its latest foray into the title and escrow space.

Financial terms of the deal – which should boost the brokerage’s margins – were not disclosed.

LegacyTexas Title has served the North Texas area for over 40 years. Its acquisition by Compass will expand the brokerage’s title and escrow portfolio to cover one of the nation’s hottest real estate markets.

The pending deal marks Compass’s third title and escrow company acquisition in the past year. The Robert Reffkin-helmed brokerage acquired Seattle-based title and escrow software start-up Modus in October 2020 and expanded again its portfolio earlier this year by acquiring Washington D.C.-area title insurance and settlement services company KVS Title in February.

LegacyTexas Title has served the North Texas area for over 40 years. Its acquisition by Compass will expand the brokerage’s title and escrow portfolio to cover one of the nation’s hottest real estate markets.

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In its analysis of Q2 2021 figures surrounding mortgage and real estate closings, FundingShield found an overall increase in the risk of wire and title fraud, with two in five (40%+) transactions categorized as high risk.

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The LegacyTexas deal is expected to close before the end of the year, according to Compass.

Following the acquisition, Compass’ title and escrow services portfolio will now serve California, Florida, Washington State, Maryland, Washington D.C. and Texas.

Compass’s expansion into title and escrow services has not been without hiccups. In March 2021, the Washington state insurance commissioner filed an order to revoke Modus’ insurance license for allegedly violating a real estate regulation preventing title and escrow companies from giving individuals who place business with the title insurer any form of direct or indirect payment, fee or reward.

In June, the Washington state insurance commissioner issued a minimum $15,000 fine to Modus for violating regulations, including those related to inducements and other non-title services offered to real estate agents. The company’s license is not being revoked.

Compass has not been shy about its goal in having tentacles in every part of the real estate transaction, including ancillary services such as mortgage, concierge, bridge loans, and title & escrow.

By having its own title companies across the country, Compass could potentially collect millions in revenue, boosting its earnings. Similarly, the brokerage also announced in August that it would be launching a mortgage joint venture with Guaranteed Rate, called OriginPoint, another surefire way to collect millions in revenue.

Compass, which went public in early 2021, posted impressive growth numbers in the second quarter, albeit in an extremely hot real estate market that has lifted all boats.

The nation’s second-largest brokerage posted $1.95 billion in revenue in Q2, topping arch-rival Realogy for the first time. In all, Compass’s losses dropped to just $7 million, a substantial improvement from prior quarters.

On the quarterly earnings call in August, Reffkin noted that transaction volume soared 140% year over year, compared to the overall U.S. real estate market climbing 32% over that time. He repeatedly spoke of Compass’s ultimate goal in creating a complete “end-to-end” technology platform for real estate agents, which he said would took about a year.

“I know some you just see Compass as a brokerage,” Reffkin said, but “no brokerage firms are making necessary the technology investments” of Compass.

With everything “centralized on one platform,” Reffkin said, the brokerage will enjoy revenues “multiples above the industry average per transaction.”

Meanwhile, the title insurance industry itself is undergoing significant change. Over the past two years, dozens of smaller firms have merged or been acquired. Foundation Title & Escrow expanded its footprint in Alabama through its merger with Paulus Title. Knight Barry Title purchased Title One as it expanded its operations in Minnesota. Then there was National Title and Escrow, based in Dexter, Missouri, which acquired Mississippi County Abstract and Loan, based in Charleston, Missouri.

“Big Four” title insurers Fidelity National Financial, First American Finance Corp., Old Republic National Title and Stewart Title have been making acquisitions of their own to beat back the increase in competition from mortgage lenders and real estate brokerages with their own title & escrow arms.

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