The commercial real estate selling process is complicated. If you’ve never before sold commercial real estate, you may wonder where to start.
First, you will need to decide on your selling goal and choose the way you want to sell your business property:
- Through a commercial real estate broker.
- To a commercial real estate investor.
- Through a ‘For Sale By Owner’ (FSBO) model.
Depending on your decision, you may or may not need to thoroughly prepare it for the sale.
From pre-sale planning to the closing day, this comprehensive guide provides you with the in-depth information you need for a successful sale. So, keep reading.
How to Sell Your Commercial Property and What Is Involved in the Process
Determine the Ultimate Goal You Want to Accomplish by Selling
Commercial real estate sales can involve large amounts of money. And federal, state and local governments want to collect taxes wherever possible. To get the maximum benefit from the sale of your property, consider the ultimate goal you want to accomplish by selling:
- Has the property been a money-burner? Your goal may be to get cash as soon as possible to pay off all creditors from the proceeds.
- Do you want to re-invest the money in another commercial property? A 1031 tax-deferred exchange may be the best option.
- Are you approaching retirement and have a surplus of cash? An investment in an annuity or other financial product can be structured to give you an income for life.
Have your accountant help you map out a plan for managing the proceeds from the sale. While maximizing your profit is an important goal, a large influx of cash may or may not be in your best interest.
3 Best Ways to Sell Your Commercial Property
#1 Work with a Commercial Real Estate Broker
Who Are Commercial Real Estate Brokers?
A commercial real estate broker is a licensed real estate agent who helps clients buy, sell, or lease a business property. Typically, commercial brokers have a college degree related to finance or real estate.
Knowing how to price a commercial property accurately is one of the biggest challenges when selling commercial real estate. An experienced commercial broker will have first-hand knowledge of your market.
They will know what properties similar to yours have been selling for in your area. With a broker’s assistance, you can set an asking price that will encourage buyers—without underpricing the property.
An experienced broker understands the entire sales process and can guide you through the critical steps, from the pre-planning stage to the closing. They can refer you to the other professionals needed, such as:
- Real estate attorneys.
- Title agents.
- Photographers and videographers.
- Website developers.
- Marketing professionals.
- And more.
We put together a directory of top rated commercial real estate agents and brokers on PropertyCashin.com for you to find a reliable professional in your area.
Advantages of Working with a Commercial Real Estate Broker
A commercial real estate broker can help you put together a comprehensive marketing plan that will expose your property to the right potential buyers. They can save you countless hours of managing the marketing of your property.
A skilled broker will already have a list of potential buyers for your warehouse, office building, vacant industrial property, or other types of commercial real estate. Their connections to prospective buyers can reduce the time your property sits on the market.
Negotiations with potential buyers can consume large blocks of your busy schedule. Experienced brokers can put together complex real estate transactions involving multiple buyers—freeing up your time to attend to business.
In some instances, you may not want tenants or other business associates to know that you are selling your commercial building. A broker can work out of sight to help maintain the confidentiality of your sale.
They can qualify potential buyers before disclosing confidential information about a property or before showing the real estate.
Disadvantages of Working with a Commercial Real Estate Broker
Commercial real estate brokers typically charge a 4-8% commission. For a multi-million dollar property, the commission is a hefty price that some owners are unwilling to pay.
Typically, a broker will work with multiple clients at the same time. The more successful the broker is, the less attention you will be able to get from them. If your broker has clients of a higher priority, you may not get the time and attention you are paying for.
Unless the broker has a buyer already looking for a property like yours, it can take considerable time for your property to sell.
#2 Sell It Fast to an Investor (aka Cash Property Buyer)
Who Are Cash Property Buyers?
Commercial real estate investors form companies that buy commercial properties for cash. Consequently, commercial property cash buyers must have immediate access to large sums of money to do business.
For those property owners who wonder how they can sell a commercial property fast, the commercial investor is the answer. Unless you have a buyer waiting in the wings, there’s no quicker way to sell a property.
Commercial investors also buy distressed properties from owners who can’t or won’t fix up their buildings to attract typical commercial property buyers.
How to Find the Right Property Cash Buyer?
When putting together a list of potential investors, you need to know something about their clientele and their portfolio. For example, if you have a Class A office building that you need to sell quickly, you should contact an investor who primarily sells high-end properties.
An investor who specializes in Class C apartment buildings should probably not be your first choice.
Commercial real estate investors frequently have a website. Do an online search for ‘commercial real estate investors in [your city].’ For a monthly subscription fee, you can also use various online resources that provide extensive databases of commercial real estate properties as well as investors and their portfolios.
You also have a simpler option—selling your commercial building or land with PropertyCashin. Since 2013 PropertyCashin has been specializing in buying commercial properties across the USA. Now we are the largest North American platform that connects commercial property sellers with investors who buy commercial real estate for cash.
The property owner can sell directly to us. Or they can sell to one of the many reputable investors that partner with us. Our portfolio is very diversified. We buy real estate ranging from Greenfield land to Class A office buildings—and most everything in between.
Advantages of Selling to a Property Cash Buyer
Our process is the fastest real estate transaction possible. After agreeing to our offer and signing the purchase agreement, the sale will be completed in a matter of weeks.
You will receive your cash shortly after the closing. And there are no real estate commissions, closing costs, or hidden fees for you to pay.
If you have any outstanding debt on the property, we can settle with the bank—even working with your lender in a ‘short sale’, if necessary. We can contact the local tax authority and clear up any tax issues as a part of our offer.
You have no responsibility for the condition of the property when selling to us, as long as it’s disclosed. We buy a property AS IS. And after our contract is signed, you don’t have to spend time or money fixing any problems.
It’s important to know the fair market value of your property when putting it on the market. But when selling to a cash property buyer, you don’t need to spend any money on a thorough professional appraisal and provide the appraiser with technical and business documents containing data necessary to calculate the value.
Usually, within 72 hours of visiting your property, we will have a cash offer ready for your review.
Disadvantages of Selling to a Commercial Real Estate Investor
Just like any cash property buyer, we factor all of our projected expenses, risks, as well as our overhead and profit, into our cash offer. As a consequence, our offer will not be as high as the full market value of your property.
PropertyCashin has a stellar reputation and years of experience. But not all investors are reputable and experienced. Some commercial investors are fraudulent and can try to take advantage of a seller. That’s why research is so critical when choosing an investor.
#3 Sell It “By Owner“
Advantages of Selling “By Owner”
Privately selling a commercial property has the potential for the owner to pocket the most amount of money. Without hiring a realtor, 4-8% of the purchase price can be saved.
A sale ‘by owner’ can be the best choice if the seller knows a potential buyer. For example, you and another landlord have owned numerous small apartment buildings in the same neighborhood for years.
The other landlord told you to contact them if you ever wanted to sell. Since the other landlord knows you, your property, and your neighborhood, you might be able to get an offer for the building by a simple phone call.
Disadvantages of Selling “By Owner”
But selling commercial real estate is not that simple. And what you may not know can hurt you. A few mistakes here and there can cost you more than what you could save by not paying an experienced realtor.
What if you overlook an essential legal matter? It’s easy to do on a commercial property, given the complexity of the transaction. Because of the amount of money at stake, lawsuits involving commercial property tend to be much more expensive than with residential property.
With only a limited knowledge of the CRE market in your area, what if you set the wrong asking price? If you’re too high, it will cost you wasted time—sitting on a property that won’t sell, which could be detrimental when trying to liquidate your assets quickly.
But if you’re too low, you stand to lose money—a lot of money with a larger property.
Determine All the Owners and the Ownership Type
Are you the sole owner of your property? If not, your real estate could be owned:
- Through an LLC.
- With a partner.
- Through a corporation.
- Through a trust or with other tenants-in-common.
- With an ex-spouse.
As long as the property has been making money for the other owners, you may have free rein to manage the property as you see fit. But you may not have the control to sell it however you want.
Ask your commercial real estate attorney to check the organizational documents and determine who needs to approve the sale. It is best to seek the approval of all the owners—even when not legally required to do so. It’s possible that one owner might want to buy out all the others. Now wouldn’t that be easy!
Get a Commercial Real Estate Attorney
An experienced commercial real estate attorney is an absolute must. Involve them from the pre-planning through to the closing.
Complex laws govern commercial real estate. An experienced attorney will make sure you don’t have any legal exposure from your property sale. To name only a few issues that are best handled by a lawyer:
- Any defects with the property should be disclosed on the appropriate documents.
- Agreement must be reached regarding the sale when multiple owners are involved.
- Title issues must be resolved before the sale.
- The structure of the transaction must be in compliance with the current laws—such as a 1031 exchange.
- Contracts made with realtors, marketing agents, contractors, and the like must be made bullet-proof.
Your attorney should review every legally binding document prior to acceptance.
Check out our preferred vendor directory of commercial real estate attorneys and find the best lawyer in your area to help you handle your transaction.
Check and Clear the Title
Any issues with the property’s title should be resolved in the pre-planning stage. A clear title indicates that the property is free from claims, liens, or other legal questions as to the ownership.
The property’s new buyer will likely order a title search. But the seller should go ahead and hire a title clearing company to do a preliminary title search so that any issues can be resolved before the sale.
If you have owned the property for a long time, you have probably never checked the title. Problems with the title may exist of which you are unaware. And this is especially true if you share ownership with other people.
If you own several properties in partnership with other people, it is difficult to keep track of the financial obligations that may have been leveraged with the properties.
Mechanic’s liens, unpaid utilities, secondary loans, and many other issues could encumber the title without your knowledge. An encumbered title can quickly derail an otherwise good real estate transaction.
Check if You Qualify for a 1031 Tax-Deferred Exchange
A 1031 Exchange is defined under Section 1031 of the IRS code. It allows any capital gains taxes due from the sale of an investment property to be deferred. The deferral is granted when another ‘like-kind’ property is purchased with the profit gained from the first property.
Specific rules have to be followed to make a successful 1031 exchange, such as:
- The two properties must be like-kind. For instance, a warehouse cannot be exchanged for a Class A office building.
- The exchange property must be of equal or greater value than the original property.
- The exchange property must have an equal or greater debt load than did the original property.
- There’s a window of 45 days in which to locate the new property and 180 days in which to complete the purchase.
- Any left-over cash from a 1031 exchange is taxed as ordinary income.
- Any reduction in debt load is cashed as ordinary income.
As should be obvious, a 1031 Exchange cannot be a last-minute decision but must be considered in the pre-sale planning. At the same time, you need to hire an experienced 1031 exchange intermediary to handle your transaction smoothly and professionally.
You are welcome to browse our preferred vendor directory and search for professional 1031 exchange companies in your area.
Review All Current Lease Agreements
Even if you are the sole occupant of the property, your lawyer should review any current lease agreements. If you have several LLCs and Partnerships, you could have made a lease agreement involving your building for tax purposes.
And if you’ve forgotten all about that arrangement, it must be resolved before the sale. Otherwise, that agreement could cause problems for you or the new buyer.
With multiple tenants, each lease must be considered—even if the arrangement was a verbal agreement that was never written in contract form.
It is important to evaluate your agreement with each tenant (whether written or verbal). Make sure that no violations of those agreements occur when building ownership is transferred.
Also, check for any tenant improvements that have not been reimbursed by you. And check for any tenant liabilities due to you.
Review the Condition of Your Property
If your property is located in an area of a city where buildings abut each other or share a common wall, check to see the date of the last ALTA survey. A potential buyer will want to verify that the boundaries specified in the marketing description are the legal boundaries of the property.
ALTA surveys are expensive, but should normally be completed before selling any commercial real estate. Confirmation of boundaries can influence a buyer’s decision in a positive way.
Collect and review any environmental assessment reports. A positive report can assure a buyer that their new property won’t be locked in a battle with State or Federal agencies.
Review insurance inspections to see if any areas of the building are out of compliance. Make sure all zoning requirements are currently in compliance.
It is recommended to hire a professional commercial building inspector to identify any problems or potential problems with the building. Fix those problems which would be a known deterrent to your target buyer.
For example, a buyer would probably overlook damaged flooring in a Class C office building. But a piece of cracked Italian marble in the lobby of a Class A office building would definitely be a problem.
Being aware of the condition of your property, as contained in the inspection report, can help you during negotiations with a buyer. A buyer cannot as easily blind-side you with supposed problems when you know the condition of your commercial real estate.
Review All Service Agreements
A commercial property usually has multiple contracts with outside vendors, such as:
- Food service providers.
- Grounds maintenance contractors.
- Electrical engineers.
- Fire safety contractors.
- Elevator maintenance contractors.
- Janitorial service providers.
Review each of these service contracts to determine what, if any, early-termination fees might apply.
You won’t be able to determine which contracts will be assumed by the new buyer. So it is advised to immediately cancel long-term contracts on a date that coincides with a projected closing date on the property.
By doing so, early-termination fees can be reduced. And you won’t get stuck paying for services after you no longer own the building. Note: most vendors will stay with you on a month-to-month basis if the property takes longer to sell than you estimate.
Determine the Property’s Value
In this guide we will give you a short summary of commercial real estate valuation methods. For more information read our guide How to Value Commercial Real Estate (3 Appraisal Methods).
Using a Professional Appraiser
As mentioned earlier in the guide, correctly pricing a property is one of the biggest challenges when selling commercial real estate. It almost always makes sense to hire a professional commercial property appraiser to help you set an asking price.
Unless your circle of friends includes professionals involved with commercial real estate, you probably won’t know what is going on behind the scenes. To illustrate:
A major developer plans to build several Class B office buildings in your city (unbeknownst to you). If you have an older Class B office building for sale, it should be priced to sell quickly.
Otherwise, when buyers get wind of the coming increased office space offering, your property will suddenly become less valuable—something an appraiser will know.
Three Approaches to Commercial Property Appraisal
#1 Direct Comparison
The direct comparison approach to commercial property valuation compares your property with the recent sales of similar properties in your area.
The guiding principle, when using this approach, is that the value of your property should be no more than the cost of buying a similar or substitute property. Consequently, current market knowledge is a must for the appraiser.
The appraiser will consider the differences between comparable sales and listings.
- Legal differences, such as zoning regulations.
- The differences in the physical condition.
- The differences in the location.
- The economic differences such as foot traffic or traffic counts.
The resulting value should reassure a buyer who has done their homework that your property is priced right in comparison to the other properties they have considered.
#2 Income Capitalization
The second approach, the income capitalization approach, is a more complex calculation than is the direct comparison approach. The net operating income (NOI) of the propertyis divided by the current market value (or the recent sales price).
And the resulting percentage is defined as the capitalization rate. The cap rate is then compared to the cap rate of similar properties recently sold.
The seller wants to price the property at $2,000,000. The net operating income is $60,000. The cap rate for these figures is 3% (60,000 divided by 2,000,000).
The appraiser, using this method, would advise the seller that the building is priced too high for such a low cap rate. The price must be lowered to attract a buyer using this approach, or a projected increase in the net operating income must be convincing to a potential buyer.
These numbers continually change, adding to the complexity. Unexpected equipment repair, early termination of contracts, building depreciation, and many other variables affect the income capitalization approach.
It is recommended to seek the help of a real estate accountant when working with capitalization rates. Acceptable accounting standards may not have been used in determining the cap rates of comparable properties.
#3 Cost Approach
The third approach to commercial real estate valuation is the cost approach. The value of the property equals the value of the land plus the depreciated value of the building.
An office building was completed several years ago at a cost of $1,500,000. Its depreciated value today is $1,000,000. The land it sits on is worth $750,000. When using this approach, the property is valued at $1,750,000.
As is obvious, this approach doesn’t work with older buildings. When using the cost approach formula, a fully depreciated building would only be worth the value of the land it sits on—which would never be the case.
Consequently, the cost approach is best suited when valuing a new construction.
Market Your Property
Create a Marketing Package
The only item that should be missing from an excellent marketing package is the buyer’s visit to the site. Otherwise, the buyer should be able to find out anything they want to know about the property from the marketing package.
It should include:
- A cover page with an aerial photo of the property, the price, the capitalization rate (using the asking price and current net operating income), and the address.
- A legal disclaimer is drawn up by your attorney.
- A bullet-point list of property highlights.
- A few high-quality photo highlights, with a link to more online photos and a virtual tour of the building in conjunction with a high-quality videography footage.
- A map of the area—highlighting pertinent information for building tenants, such as highway access.
Where to Advertise Your Commercial Property
Advertising channels either use a print format or a digital format.
Examples of a print format are:
- Billboard advertising.
- Newspaper advertising.
- Ads in business and real estate-related magazines.
- ‘For Sale’ signs on the premises.
- Transit advertising.
Examples of a digital format are:
- Listings on online commercial real estate marketplaces.
- Ads in online classified advertisement platforms such as Craigslist.
- Ads on social media sites such as Facebook and Linkedin.
- Google ads.
- Ads on local and regional TV.
Put together a digital version of your marketing package and incorporate it into a website for the property. In so doing you can refer to the link in all of your other advertising channels.
How and Where to List a Commercial Property for Sale by Owner
Some buyers hope to cut out all the realtor fees when purchasing a commercial property. So they want to deal with the seller directly. As a general rule, they will search for property online. Commercial realtors also look online to find properties for clients.
If you are selling your property ‘By Owner,’ several online sites list commercial property for sale, such as:
Some sites, such as Zillow.com and Craigslist.com, offer free listings. And other websites, such as 4salebyowner.com and Reonomy.com, are paid sites.
As a general rule, the more tailored service a platform provides, the more the listing costs. For instance, a free listing on a website may have a limit on the number of photos. And to use the virtual tour from your marketing package could cost extra (or not even be an option on that site).
Each website will provide instructions for uploading information about your property. Whenever possible, link back to the property’s website that you developed as a part of your marketing package.
Caution: watch when upgrading your marketing options on these websites or you will no longer have a property ‘For Sale By Owner.’ As an example, FSBO.com has a Flat Fee MLS package upgrade.
But the instant you upgrade to the MLS package you are technically no longer a FSBO. And your property listed as a FSBO on Zillow will automatically change from For Sale By Owner to For Sale (with a listing agent).
Screen Your Buyers
Unless you don’t mind wasting your time showing your property to unqualified buyers, potential buyers need to be screened. But you need to be discerning.
A realtor might be able to ask a potential buyer, “Do you have a pre-approval letter from a lender for property in this price range?” But as the seller, you should not ask such a question or you risk alienating the buyer.
Instead of asking questions to qualify the buyer for the property, ask questions to qualify the property for the buyer.
- “What is your intended use of the building?”
- “How is the building suitable for this purpose?”
- “What, if any, changes would need to be made?”
From such a discussion, you can discern a serious buyer that most likely has their finances in order.
There may be information you must tell a potential buyer about your property that you don’t want the general public to know. In such a case, explain to the buyer the importance of your privacy in the beginning of the appointment.
And ask them if they are willing to sign a non-disclosure agreement about anything discussed during your meeting. Any reasonable buyer should not object to an NDA.
Getting an Offer
An offer can be submitted in either a sales contract or a letter of intent.
A sales contract is a 10-20 page legal document spelling out the terms of the sale as well as the offered price. The letter of intent is a non-binding 1-2 page document spelling out the intention of the buyer to purchase the property for the offered price.
When you receive an offer in the form of a sales contract, the contract becomes binding only after you sign it. In a seller’s market, you might receive several offers in the same week. Only the offer you sign becomes binding.
If you do not like the terms or the price, you can submit a counter-offer to the buyer. If the buyer accepts the new terms and price, their signature will legally bind both parties to the sales contract. It is recommended for your attorney to review all offers and counter-offers.
When you receive a letter of intent, the buyer probably wants to tie up the property while they secure financing or take care of any due-diligence. Do not respond to it without the advice of legal counsel, or it could become legally binding.
Making a Counteroffer
As previously mentioned, the offer stated in a sales contract only becomes legally binding when signed by the seller. If you do not like either the terms of the contract or the offer, you are under no obligation from the sales contract as long as you don’t sign it.
When you receive an offer for your property, carefully study the document. Can you live with the price, but not the terms? Or can you live with the terms, but not the price?
If you have no hope of reaching a compromise with a buyer, you can ignore the contract. And it will expire after a specified period. For example, in California, an offer is considered to be revoked if not signed by the seller and delivered back to the buyer by 5:00 p.m. on the third day.
But if you think a deal might be possible, you can adjust the terms or the price and submit a counteroffer back to the buyer. This back and forth can continue for as long as is necessary until an agreement can be reached.
Due Diligence Period
Commercial real estate contracts have a due diligence clause. The clause is for the benefit of the buyer. The buyer is given a certain period, during which they have a right to assure themselves that they are getting the asset they are paying for.
Typically, the buyer will have the property inspected during this period. Zoning checks, environmental inspections, and any other due diligence must be completed during this time.
Commercial real estate contracts generally include certain contingencies, that if not met allow the buyer to cancel the contract without penalty:
- An appraisal contingency allows cancellation if the property appraises for less than the selling price.
- A financing contingency provides for cancellation when the buyer cannot secure financing.
- An inspection contingency allows cancellation when the seller refuses to correct defects found during the property inspection.
It is recommended for the seller to have an inspection of the property completed before putting it up for sale. The seller may or may not be aware of all the problems associated with the property.
And the inspection report will give the seller a firm grasp of the condition of the building. The seller’s inspection is paid for by the seller.
The buyer’s inspection is customarily paid for by the buyer. But occasionally, the buyer negotiates terms that require the seller to pay for the final inspection.
The buyer’s inspection favors the buyer over the seller. Whatever the inspector finds must be fixed to the buyer’s satisfaction, or the buyer can walk away from the deal without losing any earnest money.
If the seller has their own inspection report, it’s more difficult for a buyer to abuse the inspection with unfounded criticism of the building.
Signing a Purchase Contract
Typically, the seller’s attorney will draw up the final purchase agreement—after both parties have reached a tentative deal. The draft is then sent to the buyer for their review.
When all the revisions have been proposed and accepted, both parties sign the contract. And it becomes legally binding.
The typical components of a purchase contract are:
- The identification of the buyer and the seller.
- A description of the property.
- The essential rights and obligations of the contract.
- Any contingencies that must be met before the sale can go through (such as an inspection contingency, and appraisal contingency, or a financing contingency). The time for completion of due diligence will be included as well.
- A description of the condition of the property (a defective mechanical component, for instance, that was accepted by the buyer).
- Any equipment or appliances that stay with the property, such as a television in a waiting area, or a refrigerator in a break room.
- The amount of earnest money deposited.
- A list of closing costs and who is responsible for payment.
- The projected closing date.
- A signature page.
- The date the keys to the property will be handed over.
Other buyer contingencies might include any commercial tenant leases that must be conveyed to the buyer, land use approvals, and environmental reviews.
Both parties must resolve any property-related contracts. As an example, a building maintenance company has two years of their contract with the seller remaining.
Will the buyer assume the contract or will the seller settle with the maintenance company for early termination of their agreement?
Obtaining the Redemption Figure
Provide your attorney with all the details of any financial obligations against the property. The attorney will determine the payoff of any loans, fees, and penalties at the date of your projected closing. This payoff amount is called the redemption figure.
At closing the sale proceeds will be used to repay your debt against the property.
Negotiations With the Buyer’s Mortgage Lender
Commercial mortgage lenders and brokers use the credit score of the buyer when approving a loan. If the buyer doesn’t meet their requirements, the loan won’t be approved.
And unless you are willing to co-sign for the mortgage, you cannot qualify the buyer for a loan—no matter how good your credit is.
But you can help the buyer get approved by providing the buyer with documentation that accurately illustrates the property’s profit potential. Banks look at numbers.
Provide the bank with the same numbers you used to sell the buyer on the property. If the buyer thinks your property is a good deal, based on the numbers, so should the bank.
Help the buyer put together a convincing marketing package that will convince the lender that a loan to the buyer will be a reasonable risk.
Earnest Money Deposit
Earnest money is a demonstration of good faith on behalf of the buyer. When both parties sign a purchase contract, the buyer puts down the earnest money to demonstrate to the seller the intent to buy.
If the real estate deal successfully goes through, the earnest money is credited toward the purchase price of the property.
If the seller fails to fulfill a contingency in the contract (such as making certain repairs to the building as a result of the inspection), the buyer can walk away with the earnest deposit refunded.
If the buyer breaks the contract without cause, the seller can keep the earnest money. When the earnest money is deposited, the closing date can be set, and the contract signed.
How Much Earnest Money Should the Buyer Pay?
The typical amount of earnest money is 1% of the purchase price, although the amount is entirely up to the seller.
ALTA Settlement Statement
There’s no single ‘closing statement’ form for sellers. But ALTA (American Land Title Association) has developed a seller’s settlement form that is widely used across the country instead of the old HUD-1 form that stopped being a requirement on October 3, 2015.
A typical seller’s settlement statement includes:
- Basic information about the property and the parties involved.
- Financials (sales price, earnest money, assumed loans, and the like).
- Prorations and adjustments, such as property taxes.
- Loan charges due to the lender, such as underwriting fees and origination fees.
- Other loan charges, such as appraisal fees.
- Impounds (pro-rated taxes and fees)
- Title charges and escrow fees.
- Commission charges.
- Government recording fees.
The settlement statement should provide a detailed list of all closing costs.
The Closing Day
The closing process for commercial real estate generally occurs at the office of the title agent. The title agent typically holds the earnest deposit in escrow. The title agent also makes sure all documentation is in order and available for both parties to sign.
The property can then be legally transferred from the seller to the buyer in an efficient, error-free manner.
At the closing, the seller wants to get paid, and the buyer wants possession of their purchase. Both parties also want minimal, if any, exposure to present or future liability associated with the property.
For this reason, commercial real estate is commonly owned by legal entities, such as LLCs and Corporations. These legal entities are designed to protect individual owners from personal loss beyond the amount of their investment.
During the closing, the buyer’s earnest money, which has been held in escrow, must be deducted from the payment due to the seller.
A clear title to the property must be provided to the buyer. And the buyer will receive insurance coverage from the title company, in the event of a future problem with the title.
The closing documents must be reviewed and signed.
Tenant contracts and service contracts must be conveyed from the seller to the buyer per their agreement in the purchase contract.
A bill of sale must document personal property included in the real estate transaction.
Commercial real estate transactions frequently involve complicated financial arrangements with banks, investors, and the like. All documents related to the financing of the property must be signed. And both the seller and the buyer must settle with their respective financial backers.
In a successful closing, the seller is paid and freed from any further liability related to the property. And the buyer takes possession of what they paid for, with no carry-over liability from the previous owner.
Following is a summary of typical closing costs incurred by both the buyer and the seller in a commercial real estate transaction. For more information read our in-depth guide Commercial Real Estate Closing Costs for Sellers.
- Title search (title clearing): the property’s title is usually cleared by the seller before the sale, and by the buyer after the sale. The typical cost is less than $1,000.
- Title insurance: a title company issues an insurance policy to cover any loss from a defective title up to the amount of the policy. The cost of the policy depends on the amount of insurance purchased—usually paid by the buyer.
- Property Condition Report and Facility Condition Assessment: as a part of due diligence, the buyer hires an inspection of the property before closing. These reports provide a comprehensive analysis of the property—from needed repairs to compliance with the original design and engineering intent. The cost is based on the size of the building and is paid by the buyer.
- Appraisal: the seller usually orders and pays for a pre-sale appraisal. The buyer normally requests and pays for an appraisal, as a part of due diligence.
- Marketing Costs: if selling through a broker, the broker will normally pay for some of these expenses from their commission (but some brokers charge for advertising). When selling by owner, the marketing package is another out-of-pocket expense you should consider.
- UCC searches: the seller orders and pays for a search to make certain no one has a UCC filing on the property.
- ALTA survey: the seller orders and pays for a detailed survey identifying property boundaries—cost subject to the size of project.
- Transfer taxes: the seller pays taxes on the sale for an amount determined by their local jurisdiction.
- Attorney fees: both the seller and the buyer have attorney fees to pay.
- Broker commissions: who pays what is stipulated in the purchase contract. But fees are typically 4-8% of the purchase price and are normally paid by the seller.
How to Sell Commercial Real Estate Fast
If all of this information has discouraged you from trying to sell your commercial real estate ‘by owner’ or through a commercial real estate broker, give us a call. In just a short time after contacting us, we will visit your property. And within 24 hours we will have a cash offer for you to consider.
We have assembled some of the most experienced and reputable commercial real estate investors throughout the USA. And we are ready to buy your property for a fair price and quickly.
The entire commercial real estate selling process is shortened because:
- We buy with cash: you don’t wait on us to put together a financing package.
- We buy AS IS: we buy the building’s problems, tenant contracts, liens, and loans along with the building.
And in just a few days, you have cash for your commercial property—with no residual liabilities.
As the Lead Commercial Real Estate Analyst at PropertyCashin, Sam McGrath is responsible for the company’s national sales strategy. Prior to his position with the company, Sam served as a Surface Warfare Officer in the United States Navy. Further, Sam was the National Recruitment Manager at Maxim where he expanded the Maxim healthcare brand nationally. He has over 8 years of experience in creative real estate investing. In addition, Sam has bought and sold commercial and residential property in over 42 states. Sam has a bachelor’s degree in business administration and marketing from Texas State University.