Commercial Real Estate Escrow

The first step in the Escrow process is to open an Escrow account.  The Buyer and Seller must agree on the Escrow company and the Escrow officer who will manage the transaction.  The Escrow officer will then create an account to hold the funds and documents related to the transaction.  Working with Cynthia Moller at Glen Oaks Escrow was a very positive experience.

The Purchase Agreement is a legally binding document that outlines the terms of the sale, including the purchase price, closing date, and any contingencies.  It is essential for both the Buyer and Seller to review the Purchase Agreement carefully to ensure that it accurately reflects their understanding of the transaction.

Due diligence is the process of investigating the business and real estate to ensure that they are as represented by the Seller.  This can include reviewing financial statements, leases, contracts, permits, and other documents.  The Buyer should also conduct site visits and inspections to identify potential issues.

If the Buyer needs financing to purchase the business and real estate, they must obtain pre-approval from a lender. The lender will require documentation, such as tax returns, bank statements, and financial statements, to assess the Buyer’s creditworthiness.

A title search is conducted to verify that the Seller has a clear title to the real estate and that there are no liens or encumbrances on the property.  The Escrow officer will coordinate with a title company to conduct the search and obtain a title report.

Title insurance protects the Buyer and lender from losses due to defects in the title.  The Buyer must purchase title insurance to protect their investment, which the escrow company should assist with.

The Buyer must obtain insurance to protect the property from damage or loss.  The lender will require proof of insurance before funding the loan.

If the property has a history of environmental issues or is in a high-risk area, the Buyer may need to conduct environmental assessments to identify potential liabilities.  This includes testing for hazardous materials or conducting a Phase I or II Environmental Site Assessment.

The Buyer must obtain any necessary permits and licenses to operate the business, including business licenses, zoning permits, and health permits.

If the property includes leased space, the Buyer will need to review the lease agreements to understand the terms and conditions of the lease.  This can include rent payments, lease terms, and options to renew.

The Escrow officer will coordinate the preparation of all closing documents, including the bill of sale, deed, and closing statement.  Before the transaction can close, the Buyer and Seller must review and sign these documents.

The Buyer should conduct a final walkthrough of the property before closing to ensure that the Seller accurately represents everything.  This can include checking for damages, verifying that all equipment is in working order, and confirming that all required items are included in the sale.

The Buyer will need to coordinate the transfer of utilities, such as gas, electricity, and water, to their name immediately after escrow closes.

The Buyer must prepare the closing funds, including the down payment, loan proceeds, and closing costs.  The Escrow officer will provide a breakdown of the closing costs and the amount due at closing.  If the Buyer obtains third-party finance, this is coordinated with the Escrow officer.

Once all the documents have been signed and the closing funds have been deposited, the Escrow officer will close the sale.

Note:  The Seller’s net proceeds, or a portion of the Seller’s net proceeds, may be held at the close of escrow on the business assets only, not the sale of the real estate, pending receipt of tax clearance certificates.  Click here to learn more about escrow and tax clearance certificates.