The past two years of record refinance and purchase activity have put many title & escrow businesses in a financial position to expand to new markets. It’s been a promising time for many businesses; however, without careful consideration of the business’ expansion goals, the necessary resources required for success in new markets, and a realistic look at current market conditions, businesses might not achieve their optimistic visions for growth.
My team at Qualia advises businesses on how to launch title operations in new markets. Based on my team’s collective experiences working with title businesses across the country, we’ve identified four key questions businesses should consider before launching in a new market.
Question 1: What are your goals for expanding your operations?
The answer to this question may seem self-explanatory; however, the reasons for expanding to new markets can span a few different rationales. These include revenue-related reasons (i.e. creating an additional line of revenue for the business) and competition-related reasons (i.e. taking up greater market share).
For example, during Qualia’s 2022 Future of Real Estate Summit, Qualia’s Senior Title Operations Consultant, Aubri Holler, sat down with Real Title CEO, Sean Daly, to discuss the Real Title’s success in expanding to new markets. Daly explained that The Real Title’s business growth strategy focuses on expanding revenue by creating additional lines of revenue in additional markets. The company takes a “horizontal” approach, meaning that Real Title captures new business and revenue by having a “shallower customer base in multiple markets.” The alternative would be a business strategy that focuses on “vertical growth,” which means deepening customer relationships in a single market to capture more business and compete at a local level.
By defining your goals for expansion up-front, you can isolate where business from the expansion will come from. For example, if you’re acquiring an already operational title company in a new market, then transaction volume will come from the acquired company’s existing book of business. Answering this question will also provide an internal check that the expansion you’re considering aligns with your business’ broader growth strategy.
Question 2: What people, technology, and resources do you have available for the expansion?
Expansion takes time, and while it may seem like title & escrow companies are popping up in new markets overnight, the time required to establish new operations is considerable. An entire team of people must be committed to overseeing and executing each aspect of the expansion from licensing, to establishing a physical location, if necessary, to gathering requirements and custom practices for the local market.
In addition to the team required to launch a new title operation, there are also significant human resources required to keep the new operation running. As most of us know in this industry, finding and retaining talent is one of the most challenging aspects of the business. When considering an expansion strategy, it is important to consider whether you’ll need to bring new staff on board or whether your existing staff can handle the anticipated volume on top of their current workload. In both cases, training will be necessary for processors to successfully navigate the new market and accommodate for any nuance in how the transaction must be managed based on local regulations and customs.
Another resource-related factor to consider is your technology. In order to successfully grow your operations in multiple markets, you’ll need to consider the scalability of your technology. Your technology must have national capabilities with local configurability. What I mean by this is that your primary workflow software must allow your business to maintain consistent operations regardless of what state or city you are located in but also have the capability to adhere to local requirements.
For example, a scalable software provider like Qualia will allow you to customize documents to meet local requirements and will even have those documents pre-loaded for your team to leverage in the new market. The right software provider will also allow you to maintain the same base elements of your process while layering custom local elements (such as custom state action tasks) on top of that base process. This will enable your existing team to quickly understand processes in a new market so you can more efficiently scale your operations. Additionally, a common workflow will enable you to measure the success of your new title operation in a way that’s comparable to your operations in other markets.
Question 3: What is your capacity for investment?
Profitability in a new market won’t happen overnight, so it’s important to consider how much you can invest in the new operation before the business achieves profitability. In other words, how long can you weather the storm or handle loss in the new market without putting the entire business in a precarious position? If you’re currently strapped for cash, then it might not be the best time to expand.
There will be increased overhead costs required to run the operation including staff, HR, technology, office expenses, operating fees, and other expenses. These should all be factored into the cost-benefit analysis.
It’s also important to remember that the market and economic conditions that may have driven revenue at one point in time (such as during the refi boom in 2020 and 2021) won’t necessarily drive revenue in the current economic environment or in the future. Considering short-term and long-term economic influences and strategic planning are essential when considering whether now is the right time to expand.
Question 4: Are you up for the challenge?
This question is admittedly a bit tongue and cheek, but it’s an important question to ponder. As I mentioned earlier, market and economic conditions are often unpredictable and navigating these changes takes a resilient, longview approach. Starting a title operation in a new market is not easy or simple and there are many things you simply cannot know or prepare for until you enter the market.
For example, during the same conversation mentioned earlier at Qualia’s Future of Real Estate Summit, Daly and Holler discussed the problem solving required to enter new markets. Daly explained that his team first sought to expand from Florida (a title state) to Georgia (an attorney state). This process inherently brought about many unknown challenges and even some rejections from underwriters who told them it wouldn’t be possible. “Whenever I hear [no] from somebody I get really excited to prove them wrong,” Daly said. This problem solving and tenacious mindset is necessary for any business considering an expansion.
The challenges go beyond just the logistics of propping up a new business. Your company culture will also be impacted. As your company grows, there are many challenges associated with preserving or improving company culture. These are exciting challenges that come with growth but can be a surprise—especially if you’ve been heads down and in the weeds with the logistical aspects of launching the new operation.
The current market is difficult to navigate. If you’re interested in hearing more insights on how to evaluate opportunity in a challenging market subscribe to Qualia Insight by clicking below and receive content like this straight to your inbox.