This Buying Commercial Property Checklist will help anyone interested in investing in commercial property to understand the steps involved in buying a commercial property.
- The buyer submits an offer to buy the property and the seller accepts the offer and executes it.
- The buyer then opens escrow by submitting his earnest money deposit. Typically, escrow is opened with a title/escrow company or an attorney.
- The buyer begins the loan process by submitting documents to his lender.
- The buyer commences his due diligence process and does his physical inspection of the property.
- The buyer reviews title and works at removing any contingencies in the contract.
- The buyer and seller agree on any remaining issues in the contract.
- The buyer gets a loan commitment from his lender.
- The buyer receives the closing statement and gives his final closing instructions to the escrow company.\
- At closing, the buyer and seller sign the closing documents and the buyer submits his funds.
- The deed gets recorded, the monies are applied and the buyer takes possession of the property.
The Escrow ProcessAn escrow is an impartial third party that serves all parties in a transaction to transfer the property. Duties that an escrow officer performs include obtaining title insurance, ordering a title search, examining the title report, clearing up any outstanding liens, preparing and issuing the final closing statements, handling and disbursing of all monies in the transaction, sending all loan documents to the lender and recording the deed.
After you have completed your due diligence and prior to finalizing the deal, you should go back and review your original reasons for purchasing the property to make sure that your initial assumptions concerning your plan and profit are still true. Check with your tax advisor to make sure he still agrees with your tax goals. Do a thorough review of your exit strategies and double check your goals to be sure that your exit timeline still works, your profit is still attainable, and your loan assumptions still work based on your latest talk with your lender.
Reviewing the Closing Statement
The final item in your checklist is your review of the final closing statement. You should review the closing statement at least 48 hours prior to closing so that if there are mistakes, there will be enough time to correct them. As a buyer, you should go over everything very carefully and take nothing for granted.
Some of the items that need close attention include:
- Checking the loan documents to make sure that they are what you agreed to (check monthly payment amount, loan amount, interest rate, loan term, amortization period, the due date. the prepay penalty, impounds for taxes and insurance and maintenance reserve account).
- The proper credits are assigned to you.
- Repairs have been completed by the seller.
- Ensure that rent prorations and security deposit amounts are accurate.
- Review that personal property is being transferred with an appropriate bill of sale.
- Review the deed for correct purchase price, names and dates.
- Review that all fee amounts are accurate.
- Make sure that defects in title are cleared.
- Verify that your down payment and closing costs are ready to be wire transferred.
- Make sure that you agree with the amount at the bottom of the settlement statement.
- Ensure that you are taking title in the entity that you have chosen.
Now that you have completed every step of the buying commercial property checklist, you can officially close when all monies due have been paid, the escrow officer has received the signed loan documents, the buyer and seller have signed the final escrow closing instructions, and a specific date to record the deeds has been determined. After escrow gets a check from the buyer’s lender to pay off the seller’s loan, escrow sends the lender the closing loan documents, releases the buyer’s payment and gives the approval for the deed to be recorded. After the deed is recorded, title will be transferred to you and the deal is officially closed.
Buying a Commercial Property – Cambridge & Counties Bank