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Commercial Real Estate Closing Costs for Sellers

Feb , 21
Commercial Real Estate Closing Costs for Sellers

Are you planning to sell a commercial real estate property? Then this guide is for you. This will provide all information about Closing Costs which are crucial terms for any successful real estate transaction. 

Closing costs are the expenses over and the property’s price that buyers and sellers usually incur to complete a real estate transaction. These costs mostly include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges.

This guide however only addresses the seller’s closing costs in commercial real estate. 

APPRAISAL FEE :

It is very complicated and confusing to set the asking price for a commercial property. As a seller you can hire a professional real estate appraiser to help with the process. The professional can decide the asking price based on the following approaches :

  • A Direct Comparison Approach by comparing the building with other similar properties. 
  • A Cost Approach is based on the value of the building’s replacement cost. 
  • An Income Approach is valuing the property based on its income stream.

INSPECTION FEE :

It is always advised to make a thorough inspection chart of the property and also the buyers. It is always a point of concern to know about the property’s condition. The seller can get the property inspected by licensed commercial property inspectors, who can identify any issues that need some tenderness, love and care. It may be easier to fix all important problems beforehand, setting mostly an accurate asking price and saving time on negotiations with the buyer and their mortgage lender.

REPAIR CHARGES :

If you are a seller, then repair works should be done by you beforehand to increase the value of the selling price. The repair of the building’s exterior and common areas is suggested. The roof of any structure should be free of leaks, and the bathrooms should be in good working condition. In general, repairing occupied areas should be limited to problems with electrical or mechanical systems. It is advisable to use the inspection report as a reference. 

AN AGENT/BROKER COMMISSION :

The average commission rate for a commercial real estate agent ranges from 4% to 8%. Usually, there are two brokers, one from the seller’s side and one from the buyer’s side. Most of the time, both get paid but there are also times found when one agent gets it all as the ultimate dealer of the property and the buyer. The broker price is based on the full sales price of the property. 

MARKETING EXPENSES :

You have to spend money on marketing your property to sell it. It is based on mostly

  • Advertising: The brokers at times charge extra for advertising your property on sale. Sometimes they include it in their commission. It is better to be aware of it. 
  • Staging the Property: You should always clean up your property before showing it to tentative buyers. When you stage up a small office, you don’t have to pay a lot and help you to sell your property quicker and for a higher price contrary to high-end urban offices. 
  • Photography: For proper marketing, taking good photos of your property is important. High-quality photography is required for good output. This expense depends on the size & requirements of your property. 

ANY OUTSTANDING DEBTS AGAINST THE PROPERTY :

You should pay all the unpaid utility bills before trying to sell the property. Any property taxes for the period up to the closing day should be paid by the seller before selling the building. Buyers usually are not much interested in purchasing real estate with tax issues. So all tax issues should be resolved beforehand. 

TITLE EXPENSES & OTHER SELLING FEES :

Normally, the buyer pays for title insurance but this payment is included in the escrow fee paid by the buyer before the closing deed and then is deducted from the seller’s proceeds. The Title Insurance benefits the buyers, saving them from any future harassment by other people claiming ownership of the property. It is suggested to hire an attorney who can deal with all legal matters. So that is an added expense too for the sellers before closing the deal. If the seller owes any money that is secured by the property, the seller should pay these debts off at closing. 

Real estate transactions are the result of several moving parts. Both the sellers and buyers have to pay closing costs. But it is still negotiable on who pays the most. The proper negotiable skills could effectively remove additional costs you may not want to pay. For a clear deal, it is always recommended to pay the closing costs.

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