Title insurance is required for purchase and refinance real-estate transactions. This type of insurance protects the buyer and lender of a property against potential losses should a property ownership dispute arise. Properties may have numerous owners over the years and, therefore, the potential for unseen issues from previous ownership. Prior tax liens, judgments and other issues may cause unforeseen legal issues with the property that must be avoided. Title insurance essentially provides an assurance that should a problem arise, your title insurer corrects the issue and/or defends you against resulting losses. Who pays for title insurance is negotiable, depending on the state in which you live; therefore, there's no hard-and-fast method for calculating the amount of title insurance paid by the seller.
Contact the title company chosen to provide the title search and insurance. Ask the title agent how title insurance costs are typically divided between the buyer and seller in your state. For example, in Colorado the costs are traditionally divided by "owner's policy" and "lender's policy"; the seller pays for the former, while the buyer pays for the latter.
Use a rate calculator to determine the title insurance rates for your state. Your title insurer can provide you with a rate calculator, or you can access a free rate calculator online. Purchase transactions commonly require both an owner's policy, which ensures that the buyer has clear title on the property, and a lender's policy, which ensures that the lender has clear title on the property. Online calculators generate insurance costs for both policies based on details such as your state, county, purchase price and loan amount. Your title agent can instruct you on how to calculate costs for both policies using a rate calculator. Calculating the amount of these costs gives you insight into how much you'd actually like the seller to pay.
Negotiate the payment of title insurance costs. If there's no tradition of the seller contributing to title insurance costs in your state, ask about the possibilities. Discuss the title insurance rates you've calculated with your title agent and ask him if it's possible for the seller to pay a specified portion. Requesting that the seller pay for the owner's policy is a reasonable place to begin negotiations. Depending upon your title insurer's policies, lender restrictions and state laws, you may be able to negotiate the total amount of title insurance paid by the seller. The seller has to agree to pay the costs you discuss with the agent.
Lenders may place a restriction on the amount of closing costs that can be paid by the seller in a real estate purchase transaction. Be sure the amount of seller-paid title insurance calculated doesn't exceed those restrictions. Your mortgage representative can provide you with those guidelines.