Closing Company or Title Company … What’s the Difference?

July 28, 2023by Brandon Banks

Real estate shouldn’t be so complicated and intimidating. It’s just people paying money to other people to buy something. Not exactly rocket science. One thing making it difficult is that there always seems to be more than one name to refer to the same thing.

It happens all the time. Your REALTOR starts talking about the “title company” … but then your uncle asks you who your “closing company” is. What gives? Do you need both? Are they the same thing?

Let’s clear up the confusion – what’s the difference between a title company and a closing company?

Are a “Title Company” and a
“Closing Company” the Same Thing?

Yes … and no. Did that clear everything up?

In all seriousness, title services and closing services are different things … but most title companies perform both. So effectively, when you hire a title company, you’re usually hiring a closing company and vice versa.

What Are “Title Services?”

Title services are the steps that need to be taken to verify the title of the property and confirm that it transfers properly. Title determines who actually owns the property and who has the right to sell the property.

Why is this important? Because you don’t want to put resources into a home purchase, wire the down payment and close on the loan … only to find out that the title has some problem and can’t be transferred into your name. Or to find out that the “seller” doesn’t actually have the right to sell the property! All that time and money, and at the end of the process you don’t even own the property.

Some of the steps that go into the title work of a real estate transaction are:

  • Title Search. The title company searches public records for any evidence of conflicts in the “chain of title” — that is, any indication that a competing owner could emerge.
  • Title Examination. The title company examines the title itself for any defects that might prevent the seller from transferring the title to another person.
  • Title Insurance. The title company issues an insurance policy that protects the buyer and the lender for problems that might arise from the title after closing. The premium for this insurance is an expense for the buyer that goes on the closing statement as a closing cost.
  • Title Commitment. An official pre-closing document that identifies the policies, the coverage of the title insurance, and any exceptions.
  • Title Report. A report on the state of the title, including information about the owner and any liens or encumbrances.
  • Resolution of Title Issues. If any minor title issues are revealed in the research and examination, the title company can often resolve those issues so the title transfers smoothly.
  • Recording Services. The title company records the new title with the relevant municipal clerk so the new ownership of the property becomes a matter of public record — searchable by other title companies!

What Are “Closing Services?”

Whereas the title service ensures that no title problems stand in the way of the closing, closing services execute the actual closing. It’s the process of the title actually changing hands, so the seller is no longer the owner but rather the buyer is.

Steps included in “closing services” include:

  • Prepare Closing Documents. Various documents need to be executed to make the sale official, including the deed, bill of sale, affidavit of title, and HUD-1 settlement statement.
  • Coordinate the Closing Process. This could include setting a time and place when all parties are available to execute their duties under the contract.
  • Maintain Escrow Accounts. “Escrow” is money held in trust — the earnest money deposit and eventually all funds needed to close the transaction — by a neutral third party until all terms of the contract have been satisfied.
  • Conduct the Closing. Guiding both parties through the steps of the closing.
  • Explain Documents. Making sure all parties understand what they are signing and agreeing to.
  • Receive and Disburse Funds. Closing services include receiving all funds needed to close the transaction — earnest money deposit, option fee, down payment, loan proceeds, and any closing costs — and making sure the funds are disbursed in the right amounts to the right parties.
  • Finalize the Transaction. Make sure that all documents are signed, notarized, delivered, and recorded.
  • Report to the State. Notify the relevant governing authority of the transaction for tax purposes.

Do Some Companies
Do One, but Not The Other?

Now you understand the difference between title services and closing services, and you know that most “title companies” do both. Are there any companies that only do one or the other?

Theoretically there could be a company that only offers title services but not closing services. There might be a few companies that offer closing services but not title services. Effectively, though, this is very rare.

Why? Because title and closing services go hand-in-glove. If a company were to do one or the other, there would be too much back-and-forth between the two companies. It is much more economical for one company to do both, and it is relatively easy to staff up both services under one roof.

As a result, there is relatively little risk of you having to juggle two companies. In almost every case, your “title company” can handle your closing, and your “closing company” can do your title work, because they will be one and the same.

Real estate jargon can make the closing process intimidating. By understanding the difference between “closing companies” and “title companies,” you can ask prospective vendors if they provide one, the other, or both. Most of the time, the answer will be “Yes, we are happy to act as both your title company and your closing company!”

You don’t have to know everything — you hire professionals for that! But the more intelligent questions you can ask, the less mysterious the process will be … and before you know it, you’ll be a seasoned real estate buyer. The closing table will no longer be intimidating. In fact, it may even start to feel like home!

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