All real estate sales can be somewhat complex. No matter what type of property one is selling or buying, it’s often wise to coordinate with professionals who can help those involved navigate the process.
However, selling some types of properties may be more nuanced and complicated than others. For the following reasons, selling commercial real estate may involve many more steps than selling a house.
A Longer Timeline
Various factors can result in commercial real estate sales taking longer to complete than residential sales. Said factors include:
- Inspection times: A commercial property is typically going to be larger than a residential property. Thus, inspecting a commercial property may naturally take longer.
- Environmental issues: The previous uses of a commercial property can influence environmental conditions at the site. For example, if there was once a factory or other type of industrial facility on the property, there may now be spills or other environmental concerns. Checking for these environmental issues and remediating them before completing the sale can add to the length of the process.
- Making improvements: Zoning laws, regulations, and other such codes and statutes can dictate the features that a commercial property must have. Sometimes, commercial properties don’t have certain required features (such as access features for disabled individuals) due to being built prior to the enactment of the relevant laws. It may therefore be necessary to make improvements or additions to a commercial property before selling it.
That’s not an exhaustive list. Other factors specific to the property one is selling or buying can also influence the timeline. Generally, though, selling a commercial property takes longer than selling a home.
More Parties Are Involved
The number of stakeholders involved in a commercial real estate transaction may be significantly greater than the number of stakeholders involved in a residential real estate transaction.
For instance, perhaps someone is selling their own home. The only people living in such a property would likely be them and their loved ones.
The situation is very different if one is selling an apartment building or office building. In these circumstances, tenants may also have a say in negotiations.
Larger Down Payments
Raising the money to purchase a commercial property may be more challenging than saving to buy a home. According to Time, the average down payment for a residence in the U.S. is currently about 6% to 7% of the purchase price. A Business News Daily piece indicates the average down payment for a commercial property is approximately 25%.
Financing a commercial property purchase may also be complex if it involves accounting for not only the cost of the property, but the cost of making any required improvements or additions as well.
Taking a Closer Look
Performing thorough research is critical regardless of what type of property one is buying. That said, it’s worth noting that many purchase commercial properties as investments. Or, they may purchase them for use as offices, manufacturing facilities, or for other business-centric purposes.
Determining whether a property will deliver a strong return-on-investment or is otherwise sufficient to serve its intended commercial purpose can require even more substantial research. Along with adding to the length of the process, the research a buyer conducts can add to the types of information or documentation they may require from a seller or other involved parties.
The Importance of Professional Guidance in Commercial Real Estate Transactions
None of this is meant to discourage anyone from proceeding with a commercial real estate transaction. Understanding the potential complexities these transactions may involve is simply of critical importance. When those buying or selling commercial real estate know what to expect, the experience tends to run more smoothly for all involved.
Those involved in selling or buying commercial properties also benefit from coordinating with experts. By hiring the right team of professionals, one can simplify a commercial real estate transaction without rushing the process.
Roach & Lin, P.C. is a New York law firm offering real estate law services.