While one commercial real estate (CRE) transaction may differ from the next, the steps required for a successful acquisition are generally the same. This is true no matter how many transactions you complete over the course of your business.
Because understanding each step and its importance within the CRE acquisition process is essential, our team of real estate experts has detailed the various stages of the process in the following posts:
- How To Establish Your CRE Project Strategy And Selection Criteria
- How To Conduct CRE Market Research And Screening Step-by-Step
- How To Obtain Decision Support For A CRE Acquisition Strategy
- Tips For Leveraging Commercial Real Estate Lease Negotiations
- How To Navigate The CRE Documentation Process
Successfully navigating each of these steps is essential, but tying it all up during the purchase agreement closing stage ensures that all paperwork, reports, and transfers are conducted properly. In this post, we explore each step of the purchase agreement closing process to ensure your efforts come to a smooth, successful close.
The Purchase Agreement Closing Process Explained
As with any stage in the real estate acquisition process, it’s imperative to approach the purchase agreement closing phase with diligence. Our real estate experts can help you navigate these final steps to ensure all involved parties, including yourself, are in alignment.
Step 1: Document the Purchase Agreement
Above all, your purchase agreement should be meticulously documented. This includes ensuring all documentation:
- Is recorded accurately and covers all critical business and legal issues.
- Includes all relevant parties.
- Meets deadlines.
- Outlines responsibilities and workload to be managed.
- Details the money deposit amount, and the time at which all or portions of it become non-refundable.
Step 2: Establish an Escrow Agent
An escrow agent is a third party that holds deposits and all other funds in a neutral account until both the buyer and seller fulfill their agreed upon obligations. Your escrow agent prevents and/or alleviates any trust issues between you and the other party before releasing the funds.
Step 3: Perform Due Diligence
When performing due diligence, you must seek to address any and all property-related concerns. Ensure that, during this time, the information you receive includes your rights, including:
- A property condition assessment. Also known as a Property Condition Report or Commercial Building Inspection, the property condition assessment involves a thorough inspection of the property. This assessment identifies the expense to fix any failing or damaged building systems.
- Environmental review. This addresses the condition of the space and surrounding area, and notes the presence of any hazardous materials. Environmental cleanup projects can be extremely costly—especially when unidentified ahead of time.
- Survey review. Conduct and assess the findings from an ALTA land title survey. This type of survey is used to confirm accurate site size, property boundaries, building and improvement footprints and sizes, and any title encumbrances and physical encroachments on the real estate.
- Title review, including zoning and use. Ensure that the property specifications do not violate any zoning requirements set by the local government.
If you are buying an investment, you’ll also want a financial review of lease agreements of tenants and expenses.
This step of the purchase agreement closing process also involves physical due diligence, including:
- Site walk-through.
- Environmental report gathering.
- Site plan and specs gatherings.
- Seismic report.
- Structural inspection.
- Interior inspection.
- Mechanical and electrical inspection.
- Documentation collection.
- Pest inspection.
Remember: The buyer may object to issues discovered throughout the process. If this occurs, the seller must attempt to resolve them. The buyer also has the right to extend the due diligence period. However, the right to extend may look different depending on the agreement’s terms.
Step 4: Complete the Closing Period
In this final stage, it’s essential to have a closing checklist; the buyer’s and seller’s respective attorneys will contribute to this. Similarly, you must ensure all lender requirements have been met, such as ordering an appraisal and reviewing all due diligence materials. This step may require the buyer to reserve funds to be available for future resolving of issues.
Then, all requirements must be reviewed, including any legal and property rights transfers, and any other concerns with your real estate advisor before signing. Once signed, the signee receives the assignment documentation and officially assumes ownership over the real estate. You’ll also need to provide proof of signing authority. Both the buyer and seller must provide proof that they have the legal authority to execute a commercial real estate transaction on the company’s behalf. The closing period is complete with the transfer of the title.
How Allegro’s Real Estate Advisors Can Help Clarify the Closing Process
We understand how cumbersome the closing process can be, especially without commercial real estate experience. Our team of real estate experts assists buyers through each step of the closing process to avoid confusion or frustration. We proactively manage the buyer’s due diligence process and review the settlement statement with them, ensuring a smooth, streamlined process each time.
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