Last month we discussed the general difference between residential and commercial transactions.  This month, we have a two part series on the overall Commercial Escrow Process. Between these two articles, we are looking to give you a comprehensive look at the commercial transaction process.

Commercial transactions have less statutory protection than private ones.  This is good and bad. The downside is that you have to be more cautious. The upside is that it allows you to come up with some unique ways to setup the deal.

We break the process down into four steps and shall tackle the first two in the initial part of this series.


Step 1: Setting up Escrow

Over 100 years ago, escrow was created as a third party to protect the rights of each individual or entity in a transaction.  This happens for residential and commercial transactions. It solve the issue of trust between all the entities involved.

With commercial transactions, the escrow process is defined in detail due to the shear size and complexity of the transaction. There are often multiple parties involved and the monies could come from more than one place. Additionally, the statutes are not setup to require anything for commercial dealings.  Thus, escrow has parameters setup to give each party ample time to do their due diligence. This is in the escrow agreement and the escrow officer reviews the terms before the transaction closes.


Step 2: Escrow Agreement in Commercial Transactions

Prior to escrow opening in a commercial transaction, there must be an agreement that outlines the details of the transaction.  It will usually set out what the duties of the escrow officer are and when funds can be released.

While residential transactions usually have a standard escrow agreement, a commercial one is highly customizable. The similarities are usually the following:

  • A statement assigning the escrow company.
  • Requirement for escrow to not mix monies.
  • Parameters of what each side needs to provide before funds release.

The escrow officer is not responsible for checking each item in the agreement.  They are only there to facilitate the exchange. When all the terms are met, each side will instruct escrow to release the monies.

So far, we’ve only touched the tip of the commercial transaction process. Check back later in the month for the next two steps in the process or contact Bay Area Escrow.