Are you familiar with the interim binder? If not, this may be very valuable to you! The binder is designed for a special purpose and cannot be used in every real estate transaction. You need to ask your buyers, “How long do you intend to keep this property?”

If they intend to keep the property for up to four years before reselling, a binder may be a good option.

Q: What purpose does a binder serve?

A: An interim binder allows the buyer to resell the same property and have a policy of title issued to their own buyer at a fraction of the cost. (A binder is not a policy of title insurance. In the event of a claim, the purchaser of the binder must convert the binder into a policy and then make the claim.)

Q: How long is a binder good for?

A: The standard term is three years, but the binder may be extended for another year, for an additional 15% of the basic insurance rate.

Q: What does a binder cost? What will the buyer’s costs be if they resell the property within the three-year period?

A: The cost will vary from case to case.  The original seller usually pays the basic policy fee.  The buyer then pays an additional 10% of the scheduled insurance rate for the binder.  When the property is resold, the title charge is the difference in the title premium between the original cost of the property and the premium for the resale price.

Example: John Seller sells his property for $80,000. Phil Broker, understanding that this purchase is a short-term investment for his buyer, requests an Interim Binder before the close of escrow.  The escrow closes and the charges are as follows: John Seller pays a policy fee of $555, his normal charge. Tom Buyer pays $56, or 10% of the basic rate for the binder. One year and eleven months later, Phil Broker finds a buyer for the property, which is now worth $100,000.  Tom Buyer, who is the new seller,  now reaps the benefit of the binder he purchased when he bought the property.  He will only pay for the increased insurance amount necessary to cover the increased price of the property.

$515 (Short term rate of $100,000 new sale)  – $444 (Short term rate on $80,000 original sale) = $71

The total cost for an owner’s policy of title insurance is $71 plus the 10% or $56 paid up front when the property was purchased for a total of $127, as compared to $515, the normal short term rate fee for a home valued at $100,000.

$515 (Short term rate on $100,000)  –  $127  ($71 paid + 10% fee of $56) =   $388 TOTAL SAVINGS

I hope you’re having a great day – let me know if you need anything.