How Commercial Real Estate Sales Are More Complex Than Residential

In a very broad sense, one may be inclined to believe that commercial and residential real estate sales are the same. While they do go through very similar closing processes, there are some very distinct differences. 

Commercial transactions are a lot more involved— especially when it comes to titles, the number of investors, the type of asset, and more. 

Complicated Titles

One of the most common reasons for complexities that are faced in commercial real estate sales involves title issues. In order to be able to take title to the property, it is going to need to be clear of any defects. That means that there is nothing standing in the way of your ownership rights. 

The title team will search high and low through official records to ensure that everything is uncovered – including the discrepancies. Because these large transactions often come with a great deal of history in public records, it allows for more opportunities for things to go wrong during the title search phase. 

Any judgments, liens, outstanding taxes, unpaid utilities, outstanding mortgages, and so forth will need to be taken care of as a condition of the closing. Encroachments and easements also need to be addressed. 

Just in case something gets missed for one reason or another, a title policy can offer protection. Otherwise, without all of this attention paid to the title, financial loss can occur. 

More Money and More Players

Residential properties usually sell to single individuals or investors, couples, or families. This means that all communication and decisions are generally handled by one person or party. With commercial real estate sales, there are often many people involved, including single investors and corporations. 

Anytime more than one buyer is involved, it can complicate the process. When you are referring to deals that involve millions – or even billions – of dollars, there is a lot of interest riding on the transaction. 

Conflict can arise that will further interfere with the transaction. 

Third-Party Interactions

As with any real estate transaction, there are third-party individuals involved in order to meet the need for specialized reports. If the purchase is being financed, many of these are required by the lender as conditions of the loan. Below are common third-party interactions. 

  • Appraisals
  • Surveys
  • Environmental reports
  • Property condition reports

When investing in commercial property, these are necessary and should automatically be considered as part of the due diligence. Of coure, it also means working with an outside party’s timeline which can cause hiccups.  

Having an Experienced Team

There is a lot involved in a commercial transaction— and this means that there is a lot that can go wrong. When you are working with professionals who lack experience in commercial transactions, you may run into some roadblocks. These could delay your sale or cause it to fall through entirely. 

The easiest way to get through a successful closing without any extra heavy burden is to have the right team on your side. Everyone from your realtor and title agent to the legal team that will smooth away any complex legal issues will play an essential role in your transaction. 

Remember, unlike residential, commercial real estate closings can last months. The more experienced your team, the more efficient and hassle-free it will be. 

Roach & Lin is a real estate law firm in Long Island, NY, specializing in foreclosure, bankruptcy, evictions, REO/real estate, loss mitigation, and litigation.

Emily Thompson