How Long Does a Commercial Closing Take?

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February 18, 2022

Keys inserted in a door hole

All commercial real estate transactions involve a whole lot of complexities that could prove to be overwhelming for the parties involved. More often than not, buyers and sellers want to get the whole process over with as soon as possible. If you are new to these transactions, you might find yourself asking: how long does a commercial closing take?

How Long Does a Commercial Closing Take?

On average, it could take anywhere between 75 and 90 days to close on a commercial real estate transaction. This time frame, however, could be reduced or extended as a result of the time needed to carry out important activities such as pro forma analysis, appraisals, and title approval. 

Other factors that affect the duration of a commercial closing include the length of due diligence period, the amount of time taken to get your mortgage approved, and how long it takes the legal entities involved in the transaction to provide proof of signing authority.

Realtor and client shaking hands with the closing of a house

The following are important activities that contribute to the length of time it takes to close on a commercial real estate transaction:

Escrow 

Escrow is an important aspect of a commercial transaction. It involves the deposition of funds in the account of a neutral third party for safekeeping until all escrow requirements are met, or until one party decides to pull out of the sale. The main point of escrow is to promote trust and protect the interest of both parties. 

More often than not, the title agent is selected to be the escrow agent as well. This is because they are already knowledgeable about the details of the deal, and stand to gain nothing from the success or failure of the deal. 

Before the transfer of funds to the escrow agent, some form of agreement has to be reached by both parties. Escrow agreements clearly state the operating terms of the escrow, as well as the duty of the escrow agent in various situations. Selecting an escrow agent and drafting a sales agreement could take a week, hence lengthening the transaction.   

Unlike a residential real estate transaction that involves only two parties, a commercial real estate transaction involves two legal entities such as an LLC or LLP. This is because these transactions are quite costly and risky, and all parties involved want their interests protected. 

When a legal entity is used, an individual who serves as a representative of the entity is usually required to sign the documents. However, there has to be a document to prove that this individual has signing authority, and until this proof is tendered, the escrow money will not be doled out. This is another factor that could elongate the transaction. 

Man signing a document

Lack of RESPA and Due Diligence 

RESPA stands for Real Estate Settlement Procedure Act. It is a federal law that protects buyers of residential homes from ignorantly buying unsafe properties by ensuring that the sellers provide various guarantees about the condition of the property. Sadly, RESPA only applies to residential real estate. 

As a result, buyers of commercial real estate have to take out enough time to carry out due diligence on the property before purchase. The due diligence usually goes on for a period of 30-60 days, which no doubt, extends the deal. 

Title and Closing Paperwork

The final step before closing can begin is for both parties to agree on the title report provided by a title company. This could take about as long as a week or even more, as the buyer might file objections within the report, which the seller has to make a response to. 

When this is done, then the closing documents can be completed and prepared for signing. Closing documents include:

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

Ways to Quicken a Commercial Closing

Quickening a commercial real estate transaction can only be achieved through conscious effort. Here are a few tips that could help:

Keys inserted in a door hole
  • Ensure that proof of signing authority from the legal entities involved in the transaction are provided on time, to allow prompt disbursement of funds 
  • Ensure that all aspects of the due diligence are carried out by professionals, to guarantee speed and reliability
  • Do research on all the laws of the state, city or county in which the transaction is taking place, and do your best to adhere to them. For example, in Ohio, sellers are mandated to do a full disclosure of all building defects they are aware of before closing.
  • Hire the services of a realtor, such as Si Vales Valeo Real Estate, to help smooth out any complexities that might arise in the course of the transaction. 

Do Lenders Pull Credit Before Closing?

Yes. Typically, lenders check the credit of borrowers at the start of the approval process, and at the end, before closing. 

Would I Pay Closing Costs on the Sales of My Commercial Property?

Yes. Both buyers and sellers alike are obligated to pay closing costs. Closing costs for sellers include agent commission fees, solicitor fees, and transfer tax. 

Conclusion 

Commercial real estate deals usually take longer than residential real estate deals, as a result of their complexities. You should not try to compare, and neither should you dismiss important details in a bid to hurry things up. 

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