When you are buying or selling commercial property, there are certain commercial real estate closing costs that you need to be aware of. These costs can add up quickly, so it is important to understand what they are and how they will impact your transaction.
We at Point Acquisitions are a cash buyer of commercial real estate in any condition. If you are selling commercial real estate, contact us before taking the steps in this article, as some or all of these costs can be avoided!
In this blog post, we will discuss the most common closing costs associated with commercial real estate transactions for sellers. We’ll also give you some advice on how to lower these selling costs whenever feasible.
Closing costs come in a variety of forms
Commercial real estate closing costs are fees that you’ll have to pay when selling a property. Both buyers and sellers need to be prepared to pay some costs. There are several forms of closing costs, depending on the type and condition of the property you’re selling. The purchase price might differ considerably depending on your property’s size; therefore, the expenses or closing charges may change as well.
Types of commercial real estate closing costs
The three most common commercial real estate selling costs are:
- Real Estate Broker Fees
Other costs are:
- Debts and property taxes
- Unpaid utility bills
- Marketing expenses
- Legal fees
- Title clearing
- Transfer taxes
- ALTA Survey
The most common Commercial Real Estate closing costs
The inspection process and fees
If you are a seller, you need to hire an inspector to examine your property’s condition before listing your property. A Property Condition Assessment or PCA is often available from engineering firms to give you a sense of the state of your structure. This will assist you in identifying any potential issues that might prevent a buyer from making an offer on your property. It will also give you a chance to fix the property, and ultimately increase its value and listing price.
In order to have a PCA done, you will need to provide your inspector with access to all areas of the property, including the roof and basement.
The cost of a Property Condition Assessment (PCA) can range anywhere from $500 to $5000, depending on the size and complexity of the property. The average cost is around $2000.
Note: Sometimes a buyer might order an independent inspection and pay for it separately.
The appraisal process and fees
A commercial real estate appraisal is a prediction of the property’s value. The appraiser will evaluate aspects such as the location, condition, and size of the property, as well as recent sales of comparable properties in the area.
The cost of a commercial appraisal depends on the size and complexity of the property being appraised. Appraisers typically charge by the hour, and fees can range from $500 to $2000. In some cases, for really large commercial properties, appraisal fees might reach $10,000 or more. Most lenders will require an appraisal to be done prior to committing to a loan.
Commercial Real Estate Broker Fees
Most commercial real estate sellers hire an agent or a broker and pay between 4% and 8% of the selling price. Buyers have the option to pay part of the fee in some cases.
Working with a commercial real estate broker might be beneficial to have your property exposed to more purchasers. It’s crucial, though, to work with a broker who knows the commercial real estate industry.
Should you hire a commercial real estate broker?
In this blog, we list all pros and cons of working with a broker. Check it out!
Other potential expenses for commercial property sellers
Debts and property taxes
If there are any liens on the property, the seller must pay them off at closing. The buyer is sometimes responsible for paying the seller, who then pays his or her remaining debts secured by the property. Make sure you’re aware of all debts associated with the property before selling.
Tax issues are a major deterrent for most purchasers when it comes to commercial real estate. As a result, all tax concerns should be addressed ahead of time.
Repairs to critical components of your property may improve its value. The exterior and common areas of the building should be repaired. Any structure’s roof should be free of leaks, as well as the bathrooms’ plumbing. Foundation issues, HVAC, and roof issues are big ticket items that a buyer will want to inspect prior to purchasing the property.
The cost of repairs can vary greatly, so it’s important to get an estimate before you start any work. When receiving bids for any required repairs, look to the inspection report for assistance.
Unpaid utility bills
If you are current on your utility bills up to the closing date, you should only pay them up to that point. Before attempting to sell the property, the owner must reimburse any outstanding utility expenses.
Some sellers choose to pay for marketing efforts in order to generate more leads. This could include anything from online listings and advertising to signage and open houses.
How much you decide to spend on marketing depends on your budget, how quickly you want to sell and how competitive the market is.
Some sellers choose to have a commercial real estate attorney review and negotiate the contract of sale. This is not required but could be beneficial if there are any complex terms or conditions in the agreement. It is typical to use a real estate attorney for larger deals as well as in specific states. Sellers can expect to pay anywhere from $500 to $2000 for legal fees.
Title clearing is the process of verifying that the title is clear of any outstanding liens or judgments. The cost for this service ranges from $250 to $750. Some examples of liens or judgments are:
– IRS tax liens
– Mechanics liens
– State and local tax liens
– Judgments from previous owners
UCC (Uniform Commercial Code) filing is usually a part of title clearing. This is a process in which the lender files a security interest against the property to protect its investment. The cost for this service is about $50.
As a seller, you should do due diligence and check with your county for a transfer tax estimate. Transfer taxes are a fee charged by the government for the sale of a property. The tax is based on the purchase price or assessed value, whichever is greater. To estimate transfer taxes, multiply the purchase price by .005 (or 0.005). The party responsible for paying transfer taxes will differ from state to state. Some states it is the seller, some the buyer, and some it is a combination of both.
The purpose of an ALTA Survey is to identify any physical encroachments on the property. This is a detailed survey that goes beyond the boundaries of the property. The cost for an ALTA Survey ranges from $500 to $2000. Most lenders will require an ALTA survey if the property does not have a current survey.
Some closing costs paid by the buyer
The buyer also is responsible for a number of fees, some of which are:
– Loan application fee
– Credit report fee
– Closing agent’s fee
– Title insurance
– Survey fee
These are just a few of the most common costs paid by buyers when purchasing commercial real estate. It’s important to discuss these expenses with your lender and closing agent to avoid any surprises at settlement.
Closing costs summary
Closing costs for commercial real estate can be expensive, but it’s important to be aware of them before putting your property on the market. By being knowledgeable about the various expenses, you can make sure that you’re prepared for what’s to come.
If you have any questions about the closing process, please don’t hesitate to reach out to us. We would be happy to help!
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