I ran every major real estate business through something called the Idiot Index.

It’s a simple ratio: the cost of a finished product divided by the cost of its raw materials. When SpaceX was founded, a rocket’s raw materials cost about 1/50th of the finished rocket. A supplier quoted $120,000 for an actuator to swivel a rocket nozzle. The SpaceX team built it in-house for $5,000. NASA-spec latches cost $1,500 each. They used bathroom stall latches. $30.

When the ratio between what you’re paying and what the inputs cost is high, you’re not paying for the product. You’re paying for process, distribution, or both.

I applied this to real estate. Property management. Brokerage. Lending. Appraisals. Insurance.

Know what flagged?

Title insurance.

Not just why it’s expensive. How did it stay expensive for over a hundred years? What forces protected this pricing structure while everything else in real estate got repriced, rebundled, or disintermediated?

Charlie Munger used to construct these kinds of problems. He’d set up a hypothetical, apply elementary academic ideas, and show you could explain an entire business from first principles. I stole his method. Any errors in application are mine.

Simplify the problem

Start with the questions that have obvious answers.

Is title insurance a real product that solves a real problem? Yes. Property records in the United States are maintained in over 3,600 county recorder offices. Liens, easements, inheritance claims, clerical errors. Roughly 25 to 35 percent of transactions have some title issue that needs resolution before closing. The guarantee has real value.

Is the price connected to the cost of delivering that value? No. The title search itself takes 2 to 4 hours from someone earning $25-30 per hour. But the search is only part of the labor. On the 25 to 35 percent of files with issues, curative work adds real cost. Blending clean files and messy ones, the all-in labor cost per transaction probably runs $400 to $800. On a $500,000 property, you’re paying $2,500 to $5,000.

A legitimate product. A pricing structure that charges 3 to 10 times the delivery cost.

Now explain why.

Follow the money

On a $500,000 property, title insurance runs $2,500 to $5,000. Of every premium dollar, roughly 5 cents pays claims. That’s NAIC data. The loss ratio averaged 4.6 percent from 2012 to 2024.

The industry will immediately object: comparing title insurance loss ratios to auto or health insurance is apples to oranges. Title insurance is a loss-prevention product. You pay once, you’re covered for life. The low loss ratio reflects work done upfront to prevent claims, not a failure to pay them.

That’s a fair objection. The relevant comparison isn’t to other insurance loss ratios. It’s to the actual cost of performing the work.

So where does the premium dollar go? Roughly 70 to 85 cents goes to the title agent as commission. The remaining 15 to 30 cents goes to the underwriter. The labor costs $400 to $800. The agent commission on a $500,000 property costs $1,750 to $4,250.

The product works. The Idiot Index lives in the distribution.

Four companies control roughly 70 to 80 percent of the underwriting market: Fidelity, First American, Old Republic, and Stewart. ALTA’s market share data shows some fluctuation year to year, but the concentration hasn’t meaningfully changed in decades.

Open the psychology textbook

The central mechanism is the principal-agent problem. The person who chooses the title insurance company is not the person who pays for it. The buyer pays the premium. The real estate agent, lender, or attorney chooses the provider.

When the chooser doesn’t bear the cost, they optimize for something other than price. Relationships. Convenience. Reciprocity. The principal’s cost is invisible to the agent.

What are the incentives? The incentive for the referring agent is relationship maintenance. Price competition never enters the equation because the person with the power to choose has no financial reason to care about price.

The D.C. Attorney General recovered millions from title companies in recent years for illegal kickback schemes. Kickbacks are the visible symptom. The deeper problem is structural: when the decision-maker has no reason to shop on price, the market doesn’t self-correct on price.

There’s a second force the principal-agent model doesn’t fully capture. Even when consumers can shop for title insurance, they overwhelmingly don’t. Title insurance is a complex, one-time, low-salience purchase buried inside an already overwhelming closing process. The cost of shopping exceeds the expected savings for something you buy once. Consumer apathy is a force independent of agent steering.

Now stack on social proof. Every transaction in your market uses the same title company. Questioning that choice feels risky. Nobody got fired for choosing the incumbent.

Now stack on commitment and consistency. Once a referral relationship is established, switching has psychological costs beyond financial ones. The referring agent has publicly committed to that provider. Changing signals the previous choice was wrong.

Stack these together and you get a Lollapalooza. Principal-agent problem plus incentive-caused bias plus consumer apathy plus social proof plus commitment and consistency, all pushing in the same direction. Protecting the margin.

Why competition hasn’t fixed it

The psychology explains why no single buyer fights back. The economics explains why no competitor breaks through.

Regulatory capture. Title insurance is regulated state by state. Each state has its own filing requirements, rate structures, and licensing rules. Some states set premiums by statute. This fragments any reform effort across 50 separate regulatory theaters. The four major underwriters and ALTA have lobbying operations in every state capital. When Fannie Mae launched a title waiver pilot in 2024, 14 state attorneys general wrote a letter asking the FHFA to shut it down. ALTA called it “federal overreach.”

An industry where 70 to 85 cents of every premium dollar goes to agent commissions, calling a cost-reduction pilot “overreach.” That’s incentive-caused bias using the language of consumer protection to protect itself.

Oligopoly structure. Four companies, 70 to 80 percent market share. They don’t compete on consumer price because they don’t need to. They compete on agent and lender relationships. Different game entirely. The barriers to entry aren’t capital or technology. They’re regulatory (50-state licensing), relational (decades of agent networks), and informational (digitized title records that took generations to build).

Not a product moat. A distribution moat. Protected by regulation, reinforced by psychology, funded by a margin that gives incumbents enormous resources to defend the status quo.

Invert

After building forward, flip it. What would have to be true for this pricing structure to collapse?

You’d need to break the Lollapalooza. Not one force. All of them.

Break the principal-agent problem. Remove the referring agent from the decision entirely. Embed title assurance into the transaction infrastructure so there’s no choice to steer.

Break the incentive structure. Create a channel where the entity making the title decision profits from minimizing cost. A lender who retains the savings. A GSE that absorbs the risk cheaper. A technology company that makes money on volume at low margin.

Break the regulatory protection. Find a pathway that bypasses state-level regulation. Can’t be done through state legislatures. The incumbents own those arenas. Has to come from a federal entity with enough authority to create an alternative channel.

Break the information asymmetry. Build a database comprehensive enough to algorithmically assess title risk without a human search on every file. Prove the algorithm works at scale.

Every one of these conditions is either being met or actively tested right now.

Doma (formerly States Title) built an algorithmic title underwriting engine that assesses risk in minutes. Fannie Mae launched the Title Acceptance pilot in 2024, creating a federal pathway that bypasses state-level requirements on qualifying refinances. 80 percent of refinance candidates in the pilot qualify to close without a lender’s title insurance policy. Doma’s defect rate: zero. Average savings: $1,100 per refi. The pilot was extended through 2027 and added a second vendor, Westcor, in July 2025.

Last week, Opendoor acquired Doma’s closing and escrow operations. Opendoor closes the transaction. Doma’s algorithm makes the risk decision. Fannie Mae absorbs the residual risk for a $75 fee instead of a $1,500 premium.

What I’m probably getting wrong

If you build the case for disruption without stress-testing it, you’re doing advocacy, not analysis.

The Fannie Mae pilot works on the cleanest files. Refinances with under 80 percent loan-to-value. Homeowners with equity, good payment histories, existing clear title. Purchase transactions are 75 percent of the mortgage market and carry materially higher risk.

The zero-defect claim deserves scrutiny. ALTA’s own Milliman-commissioned analysis found that refinance transactions actually have higher average claim severity than purchase transactions, and fraud and forgery account for roughly 40 percent of total refinance claim costs. Fraud can’t be caught by searching public records faster. It requires investigation, human judgment, and sometimes luck. An algorithm that automates the title search is not the same thing as an algorithm that catches fraud. The pilot’s clean record may reflect its tiny scale and cherry-picked geography more than the algorithm’s robustness.

Opendoor lost $1.3 billion in 2025. Settled a $39 million shareholder lawsuit over algorithmic misrepresentation. Stock under $5. Not a company operating from strength. This is a leveraged bet that fee-based closing revenue can offset a cash-burning iBuying model.

The political coalition defending title insurance is bipartisan, well-funded, and playing defense on home terrain. Fannie Mae is a GSE in conservatorship. Its director serves at the pleasure of the President. The pilot is a policy decision, not a market force. Policy decisions reverse. A single high-profile title defect during expansion gives those 14 attorneys general exactly the ammunition they need.

And there’s a cross-subsidy problem. If algorithmic review captures the easy 80 percent of files, who services the hard 20 percent? Revenue from clean files currently cross-subsidizes the expensive curative work on messy ones. Remove the easy revenue and the hard cases get more expensive, less available, or both. Adverse selection applied to title.

Then there’s the $75 fee. If Fannie Mae absorbs title risk at $75 per transaction and discovers the defect rate is higher than expected as file types expand, the taxpayer absorbs the loss. That’s a familiar pattern. The last time Fannie Mae took on risk it didn’t fully understand, the cleanup cost taxpayers over $200 billion.

Title insurance pricing survived for a century because five forces aligned: principal-agent separation, incentive-caused bias, consumer apathy, regulatory capture, and oligopoly. Each individually powerful. Together, nearly impenetrable.

That structure is now being tested by a combination that attacks all five simultaneously. Algorithmic risk assessment breaks the information asymmetry. A federal pathway through Fannie Mae breaks the regulatory protection. An acquirer that profits from volume at low margin breaks the incentive structure.

The product was never the problem. The distribution was. The Idiot Index doesn’t live in the guarantee. It lives in the 70 to 85 cents of every premium dollar that goes to the agent who didn’t shop on your behalf.

Iowa figured this out decades ago. Same coverage. $175 flat for the guarantee. Add the required attorney opinion letter and total consumer cost runs $375 to $675. Iowa’s model works partly because attorneys are already embedded in the closing process, so you can’t export the price without understanding the legal infrastructure underneath it. But the guarantee itself is $175 regardless. Over $68 million returned to Iowa homebuyers.

Distribution monopolies don’t die from better technology. They die when someone with enough institutional weight changes the rules. Fannie Mae might be that someone. The next two years will tell us.