Commercial Real Estate Escrow

The first step in the Escrow process is to open an Escrow account. The buyer and seller will need to agree on the Escrow company and the Escrow officer who will manage the transaction. The Escrow officer will then create an Escrow account to hold the funds and documents related to the transaction.  We have found working with Cynthia Moller at Glen Oaks Escrow 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 important 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 any potential issues.

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

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 is a type of insurance that protects the buyer and lender from losses due to defects in the title. The buyer will need to purchase title insurance to protect their investment which the escrow company should assist with.

The buyer will need to 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 located in a high-risk area, the buyer may need to conduct environmental assessments to identify any potential liabilities. This can include testing for hazardous materials or conducting a Phase I or Phase II Environmental Site Assessment.

The buyer will need to obtain any necessary permits and licenses to operate the business. This can include 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. The buyer and seller will need to review and sign these documents before the transaction can close.

The buyer should conduct a final walkthrough of the property before closing to ensure that everything is accurately represented by the seller. This can include checking for any 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 will need to prepare the closing funds, which can include 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 is obtaining third-party finance, this is also coordinated with the Escrow officer.

Once all of 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.  To learn more about escrow and tax clearance certificates, click here.