How Long Do Commercial Real estate transactions take, and why

Commercial real estate transactions involve daunting and overwhelming processes to reach the final stage. The processes can make you change your mind about owning property or properties. The procedure of owning real estate is similar to owning a home but with many difficulties. Both scenarios start with a purchase agreement; then, time is given to inspect and investigate the property. However, in commercial property, the procedure follows due diligence and has fewer protections.  

How Long Does a Commercial Closing Take?

Generally, commercial real estate transactions take more than 75 days but less than 90 days to complete the transaction. However, the process can take a shorter or longer time depending on the activities such as appraisal, pro forma analysis, and title approval. In addition, other factors like length of due diligence, mortgage approval, and legal entities can come into play. All these formats are to ensure the proof of signing authority. Here is the main procedure involved in the closing of a commercial real estate transaction:

ESCROW 

Escrow is the first step of commercial closing. After that, the fund or payment phase, where funds are transferred to the account of a third party for safe holding until the payments are completed, or the transaction is canceled. The escrow is to create trust while securing the interest of those involved in the transaction. In rare cases, the agent stands as the escrow because they are also trained in the deal’s details. Plus, they have nothing to gain in the success or failure of the transaction. 

The escrow agent hands out some form of agreement to both parties before accepting to receive the fund. The agreement will brief the role of the escrow and the operating terms regarding situations that may occur. The process of appointing an escrow agent and drafting an agreement may take a week or more which may lengthen the process.

LEGAL ENTITIES

Unlike residential transactions, a commercial real estate transaction involves two legal entities, either an LLC or LLP. Both parties are interested in their protection due to the cost and risk involved. Though the transaction is between legal entities, both parties send a separate representative to stand in for them to sign the documents. However, they must present some documents to prove the individual has signing authority. If no document exists, the escrow will not remit the funds. This factor can increase the length of the procedure.

LACK OF RESPA AND DUE DILIGENCE 

RESPA is an abbreviation for Real Estate Settlement Procedure Act. RESPA is a federal law that protects people from buying unsafe residential properties by holding the seller responsible until they assess the property’s condition. However, this only stands for people buying residential homes. 

As for real estate transactions, buyers intend to use due diligence before paying for the property. The law permits buyers to use 30 to 60 days on due diligence and can extend the period. 

TITLE AND CLOSING PAPERWORK

The last stage before closing the deal is for both parties to meet a title company to draft a title report. The process can last for a week or more due to factors like an objection from any of the parties. After the process is completed, the closing document is handed out for signing and preparation. Closing documents include:

  • Property disclosures
  • Environmental reports
  • Deeds
  • Assignment of liability
  • Assumption of leases 

For more information on lease renewals, contact us today. At Mobiliti CRE we focus 100% on representing tenants with relocations, expansions, contractions, and subleases throughout Tampa Bay and the entire West Coast of Florida.  We also assist businesses that are looking to purchase office, medical office, flex and industrial space.  Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at [email protected]

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