1031 Exchange

Commercial closings are trickier than residential because you have to look at zoning restrictions, there are details in the history of ownership from the corporations in the deal, and you could come across niche asset classes like co-ops where owners bought into the building like a corporation. 

The biggest difference is that you’re working with two entities rather than two people with commercial closings. This adds layers of complexity because each company or corporation will want to protect their assets as best as possible, and there’s additional legal work.  Especially in the due diligence step. And because commercial real estate tends to be more expensive than residential, the closing process needs to make sure the buyer will be able to make payments before they clear the title.  

On average it takes 70 to 95 days for a commercial real estate transaction to close.  This is because of the complexities involved in the research process and negotiations between the two corporations.  The clearer the title search and easier communication between the buyer and seller, the faster you may be able to close.

To tell if you’re using a reputable commercial closing company, ask them the right questions and listen to their responses.

Some options include:

• Are you ALTA certified?  ALTA is the organization that quality controls title companies, and you’ll likely be using a commercial title company at the closing vs. a closing only company.
• What obstacles have you faced with (insert your type of deal) and how did you resolve it? This lets you know the company has the experience to troubleshoot your transaction if a problem arises.
• Is there anything I should look at to make sure this is a good idea?  This is a tricky question, only you know if the building and land are right for your business.  The closing agent may respond with details about how they’ll check zoning laws for usage, etc… which help make sure you can use it for your business.  It is more to see if you feel confident they know your business and will work to make sure you’re clear to close so it meets your needs.

If you put money into escrow, and the deal falls through because the property was not as the seller let you to believe, you will be able to get your money back.  But this all depends on the offer, agreement, and reason why the deal falls through.  

Submitting earnest money in a commercial real estate deal is a great way to show you want the commercial property in a competitive market.  But it does come with risks.  If you decide not to buy the property and the deadline is past, you may not get the money, or at least only get a portion of it back.  Because commercial real estate deals are pricey, the amount will be large.