Real estate transactions can be simple or a nightmare. However, the potential for drama goes up exponentially when we discuss selling or buying commercial property.

Why? What are the differences?

More than Two Parties

Residential sales usually involve no more than two individuals on each side. Two buyers and two sellers is the most you see on almost all residential deals.

Commercial property transactions are different. Sometimes a commercial transaction will have one party. But this one party could be a corporation, LLC, or partnership whereby there could be 5, 10 or even more people involved.  This alone can dramatically impact the complexity of a transaction.

Longer Closings

Most residential escrows are complete in around 20-45 days.  It’s not the same for commercial transactions. In general, a commercial property has more complicated title searches, legal requirements, and timeframes for ensuring the property sale is properly done.

For instance, a residential home may have an appraisal, termite inspection, and home inspection. A commercial property would have all these and potentially environment studies for chemical contamination, technology analysis for reviewing limitations with computer lines, and zoning approvals.

A key to a smooth transaction is to understand what’s going on with all requirements. A quality escrow agent will keep you informed, so you can feel comfortable with the status of the transaction.

Buying Commercial Property has Greater Risk

Commercial deals usually have a much greater degree of risk than residential transactions. Whenever there are companies or legal entities conducting business, risk increases because entities usually have limited liability and the use of the building alone could be a cause for concern. For instance, what if the property is subject to environmental contamination or the city doesn’t approve a zoning change? Therefore, commercial escrows serve an even bigger role than with with residential transactions.

Different Laws

Residential and commercial transactions are subject to different laws and regulations. A commercial real estate purchase usually has less regulation, but often results in more due diligence taken by involved parties to ensure everything is kosher. Laws generally focusf on residential deals where it is assumed that the parties aren’t as sophisticated as with commercial property sales.

Should you have questions about a residential or commercial escrow, talk to the experts at Bay Area Escrow.