COMMERCIAL REAL ESTATE FAQ
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Often our clients pose these questions on the topic of commercial real estate. If your question is not answered below, feel free call us and we will do our best to answer them.
The term “commercial real estate” can be broadly defined as any non-residential property used solely for business purposes. It might involve leasing office space, building a new warehouse, or selling real property as part of the sale of a business. It could be a gas station, dry cleaner, shopping center, industrial property (e.g., a factory) or agricultural property (e.g., a farm). It might even involve residential properties like apartment complexes or rental houses being held for business or income-producing purposes.
I understand that the goal of every seller is to maximize profits, while the goal of every buyer is to minimize costs. Would you perform your own heart surgery or jump out of an airplane without a parachute?
Sophisticated business people rely on professional advice when it comes time to close because the potential pitfalls can be significant.
Hiring a commercial real estate broker who has specific expertise in your area of commercial real estate can save time and money in your search. A skilled broker knows the property type and nuances involving the transaction. A skilled broker has knowledge of the property markets, (landlords, buyers and sellers), and risks associated with it.
A good commercial real estate broker creates a Plan. He/she has mastered the transaction process, marketing strategy, knows the RE market. He/she provides the skills to negotiate a deal that best suits your needs.
A Broker will also serve as an arm’s-length intermediary to negotiate on your behalf, which can be much more effective than your trying to negotiate yourself. Keep in mind, too, that real estate agents work on similar deals all the time. Their knowledge and contacts can be well worth the cost of a commission.
In 26 years of our business, GeoTech has built and existing network of clients (Buyers/Investors/sellers). In turn, GeoTech has established strong relationships with law firms, lenders, franchisors, landlords and clients. We do aggressive web advertising (Costar, Loop net MLS, etc.) and direct target marketing locally, regionally and internationally. For our discerning clients who wish to remain anonymous, we adhere to confidentiality agreement which remains an important part of what we do.
GeoTech Realty, Inc and its qualifying broker(s) are licensed professionals who are hired to negotiate the purchase and sale of real estate for a commission or fee. Our broker is not an attorney and our listings clearly state that real estate agents are not providing legal advice. We have knowledge of the real estate laws and regulations and as it relates to specific transactions we conduct. Separate legal advice from an experienced real estate attorney is typically well worth the additional cost. It’s far more cost effective to hire a lawyer to get the deal done right than to wait until you’re embroiled in an expensive lawsuit. We work with qualified lawyers every day and can refer them to you when requested.
A commercial real estate broker needs to understand the client’s motivations and needs, so honesty and full transparency is important. GeoTech will take complete responsibility for the transaction when we are part of your team and empowered to seek the very best transaction to suit your requirements.
One of the most common mistakes among businesses/investors is to tour potential properties without having decided on a commercial real estate brokerage relationship. If you plan on hiring a commercial real estate broker or advisor to represent you, do so before you begin touring properties. For example, if you plan on trying to find a gas station on your own, make sure that you have all the required questions (checklist) regarding the gas station industry ahead of time from your listing Broker.
Often the best sales people in large firms are most effective procuring clients. In contrast, GeoTech is best at solving its client’s real estate needs. GeoTech is a niche firm with specialized skills in conducting market analysis, property condition assessments and due diligence studies (liability protection) . We do not know of any firm in South Florida with our experience that can do all three inhouse. GeoTech has been around for over 26 years and prides itself in the commitment made to clients, honesty, trust and results.
The amount a commercial real estate Agent receives on a commission is calculated as a percentage of the total commercial property sale price or lease value. While it’s illegal due to anti-trust laws to set a market- or industry-wide standard for commission percentages, most Agents earn anywhere from 4% to 8%.
For sales transactions over $5,000,000, the real estate commission percentage is usually negotiated downward to four percent. Typically, the listing brokerage receives fifty percent of the commission and the selling brokerage receives fifty percent of the commission. The split 50/50 commission can be as low as 90/10 in favor of the listing agent.
It can vary, but typically it takes 6-12 months and is highly dependent upon the motivation of the parties, including any lenders that may be involved.
Lots of reasons. All that goes up must come down. It’s retirement for some, or a new career that they have often wanted to try (or return to). Owning and operating a business isn’t for everyone. Surprisingly, it is seldom an economic decision. If a business isn’t making any money, it typically cannot be sold, so the buyer’s worry is typically unfounded.
Like in all real estate transactions, usual rules and risks apply: (1) identify a property, (2) identify its uses, (3) establish value for the property, (4) make an offer to purchase, (5) negotiate terms and conditions and the purchase price, (6) close the deal and take title. When buying, selling, renting or leasing a piece of commercial real estate, there are higher risks involved. The key is sizing up the risk such as market risk, investment potential, property condition risk, environmental risk, regulatory risk, etc. Your goal should be to minimize these as much as possible. Examples of potential problems that often lead to legal disputes include: Defects in title, Zoning and land use restrictions, market fluctuations, and environmental contamination.
Strictly speaking, no. Unless the parties contractually agree to it as part of their deal, there is seldom a legal requirement that there be an escrow. Inevitably, though, an escrow is a good idea. The escrow company ends up being an intermediary and a facilitator to the transaction. They can also handle most of the details and the paperwork, including escrow instructions, title reports, title insurance, recording deeds and other instruments, and disbursing funds.
“Good title,” also referred to as “clear title,” means that the ownership interests in a piece of real property are clear and unclouded. Clear title is generally necessary before property is sold; otherwise, the buyer risks a third party emerging and claiming that the seller did not have full ownership of the parcel.
Title insurance is nothing more than an insurance policy that provides assurance to interested parties (including the lender) that there is good and marketable title to the real property being insured. However, title insurance does not guarantee perfect title. As with all insurance, there are several different types of policies and endorsements. There are also many exceptions to title in the typical policy, which all tie back into information found in the preliminary title report.
Amazingly, it’s all too common for parties to close a commercial deal without first drafting and signing a formal real estate purchase contract. However, having a full purchase contract in place is usually a better strategy, even if the initial legal fees are higher. Among the factors to consider are:
Escrow instructions are prepared primarily for the benefit of the escrow holder and not any of the parties to the transaction. They typically contain language that tries to absolve the escrow company of any liability. If something goes wrong, it’s probably going to be difficult to hold the escrow company responsible. Conditions that may excuse performance by one party or the other aren’t likely to be spelled out clearly. And many real estate disputes arise with respect to one party’s performance (or lack thereof).
The escrow instructions aren’t going to cover any side deals the parties may have contemplated handling outside of escrow. The escrow holder isn’t going to provide any legal or tax advice concerning issues typically addressed in a real estate purchase contract. Escrow instructions aren’t going to contain representations and warranties from the parties that would typically be addressed in a real estate purchase contract. Escrow instructions won’t spell out the consequences if someone breaks the deal. Escrow instructions won’t include a comprehensive dispute-resolution provision directing the buyer and seller to mediation or arbitration instead of a lawsuit.
There’s a reason that real estate purchase contracts usually end up being complex and lengthy documents. Buyers and sellers try to address all the “what if’s” that might arise in a commercial real estate transaction. There is no comprehensive list of potential topics. I recommend you call GeoTech so that we can guide you with specific elements for your transaction.
It’s often possible to use standard form documents prepared by state Realtor associations to facilitate the drafting process. At a minimum, these standard form agreements can serve as effective checklists of issues you may want to address. Nevertheless, every commercial real estate transaction is unique, and the safer course is to hire GeoTech’s lawyer to prepare a customized purchase contract.
“As is” essentially means that the seller is offering a piece of real property with no warranties as to its quality. Buyers can assume that the property has some issues that the seller expects to factor into the initial purchase price without facing further negotiation or demands for repairs. Sellers trying to evade liability by selling their home “as is” should be careful, however. Many states have legislation to preclude a seller from completely passing the buck on certain issues such as environmental cleanup, hazardous waste disposal, or dealing with other dangerous known conditions. The law sometimes requires mandatory disclosure of defective conditions or problems with property, a legal norm common to other types of sales contracts. For example, a seller would likely be found liable if it sold a commercial property to a buyer and failed to disclose its knowledge that the foundation was buckling.
Again, it is an issue of risk and as I stated earlier, would you jump out of an airplane without a parachute? Due diligence for any property is critical. Environmental due diligence deals with specific property issues that could include hazardous substances, wetlands, endangered species, critical habitat, cultural resources, or regulatory audits. Some lenders may require an environmental site assessment ( Phase I ESA or Phase II ESA), and there are more compelling reasons to get one (such as when you’re buying a service station, dry cleaner, auto repair or a manufacturing business). In Florida, there are thousands of contaminated sites, some have not been identified and others are being contaminated daily. You’re probably doing yourself a disservice if you don’t get one, as any problem that arises could result in catastrophic liability exposure for you even if you didn’t cause the problem.
Call us even if you have done the Phase I ESA or Phase II ESA and just need an opinion. We will not charge you and in turn save you thousands of dollars in sleepless nights and legal fees.
A “1031 exchange” refers to a method of deferring tax on the sale of an interest in real property allowed under Section 1031 of the Internal Revenue Code. In brief, it allows a seller to defer tax on a gain that would otherwise be realized on a sale of property if the proceeds from the sale were reinvested in a like-kind property. It’s quite common for a 1031 exchange to be involved in some manner in a commercial real estate transaction.
A seller must contractually arrange to convey its interest in the property being sold in exchange for receiving an interest in another piece of commercial property. If cash is involved, an escrow company or facilitator usually handles this, because treatment under Section 1031 won’t be possible if the proceeds are paid to the seller even for an instant. In practice, however, the rules for a 1031 exchange can be quite complex and it is always advisable to have competent legal counsel involved in the transaction.
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