Are you closing your first commercial real estate purchase soon? Although complicated at first glance, the process shares similarities to when you close on a residential real estate purchase. The main differences are there are fewer federal regulations and more room to negotiate a deal of a lifetime.
Preparation is always key to any endeavor. Here are a few things to remember as well as tips to help you navigate the commercial real estate closing process.
- Escrow will be more formal
- Contracts will involve legal entities instead of people
- You must double-down on due diligence
Since commercial real estate transactions often involve huge sums of money, the escrow stage will be more formal than when you’re buying a home. It will involve more paperwork and form documents, as well as extensive checks to protect investments.
To get to escrow, an escrow agent (usually the title agent) must be selected and their duties outlined. In most cases, the escrow agent’s job revolves around the release of funds.
Requirements for the release of the money to the seller must also be identified. These instructions should be written down.
When it comes to closing commercial real estate transactions, you will be making deals with legal entities, not people. This is to protect all parties in the transaction from liabilities. In the event of a lawsuit, only the investment will be lost, not the personal assets of everyone involved.
Furthermore, there is also a benefit of owning commercial realty as a legal entity. In Utah, there are certain tax advantages, including a lower tax rate of 37% for pass-through entities.
Another thing to note is the extra amount of paperwork. Although legal entities own commercial properties, people still have the signing authority. Signing authority verification will be needed to make sure the individuals signing for both the buyer and seller have the power to do so.
To avoid any hiccups, make sure to identify who has the signing authority in your party and prepare the proof of signing authority before closing.
The Real Estate Settlement Procedures Act (RESPA) does not cover commercial real estate. Because of this, you will have to perform extensive due diligence on the commercial property you are purchasing and all the parties involved in the transaction.
Take extra time to review important factors, including all pertinent documents like leases, zoning compliance, survey reports, environmental reports, seller’s books and records, title insurance policy, and the contract of sale.
It entails more work. But on the bright side, you and the seller have the freedom to structure the deal as the two of you please. Both parties can also decide which closing documents to require from each other.
Looking to invest in commercial real estate in Ogden and other parts of Northern Utah? Destination Properties can help you find the commercial property that meets your real estate needs and helps you achieve your investment goals.