Commercial Real Estate Purchase Agreement

A commercial property purchase agreement will let a seller and buyer make a deal. The buyer will give cash for the transfer of the ownership of the commercial property. In most cases, the buyer will need to deposit a portion of the money to show that they are serious.

The money upfront is usually 2 to 5 percent of the purchase price. Only once this money is deposited will the purchase agreement become valid. The money is nonrefundable. In some cases, such as when there is a problem during the inspection, the money can be refunded back to the buyer.

What Is a Commercial Property Purchase Agreement?

A commercial property purchase agreement for real estate allows the buyer and seller to mutually benefit from a contract when you are purchasing a commercial property. In most cases, a window of 30-180 days can be requested if you need inspections and general contingencies.

When to Use a Commercial Property Purchase Agreement

A commercial property purchase agreement will help protect you from problems and liabilities. You can use the agreement if you have a problem after purchase. It will also help you understand the terms and conditions of what you are buying.

Ideally, a printable real estate sales contract should be used any time you are buying commercial property.

What Types of Commercial Property Exist?

There are a few types of commercial property that exist. Here are a few:

  • Hotels
  • Office buildings
  • Land
  • Retail stores
  • Restaurants
  • Industrial
  • Apartments that are more than 4 units

How to Purchase Commercial Property

You will need to find an investment that suits your needs for the business you are trying to obtain. You will also need to find a property that is in your purchase price point to make sure you don’t have a payment that is too high.

Remember that purchase prices will depend on the current market conditions. Some people choose to buy land when the market is low so that they spend less money. If the property is generating revenue such as from tenants, this will also affect the purchase price.

Step 1. Find out what the requirements are for buyers

This will depend on what state you live in and what kind of property you want to buy. You might also want to check your credit score from a free source before you start the buying process. Any seller will check your credit score so it’s good to know what range you are in.

Most sellers want you to at least have a good credit of 680 or more. They will also require a minimum of 20-25% of the purchase price as a down payment.

Negotiation is always possible, but you will need to be close to the score and down payment that is required.

Step 2. Search for property

You can either find the property yourself or get help from a real estate agent. The seller will usually pay the real estate brokerage fee even if they are not working with a real estate broker. Buyers should always hire an agent that has experience working with commercial property.

It will also make it easier for you as the buyer because there is a middleman to work with. Using someone with experience will also make the agreement and the selling process much easier and quicker.

Step 3. Make sure you’re pre-approved for financing

Most sellers will talk to you or begin negotiations until you are pre-approved for the purchase of the property. You will also need a pre-qualification letter or pre-approval letter.

A pre-qualification letter will show all your financial information such as debt, assets, liabilities, income, investments, and debts. It is not showing that you have a loan but shows the seller you are capable of getting one.

A pre-approval letter is also known as a binding letter. It will show the maximum approved loan amount, the down payment percentage, and the interest rate. It essentially shows your credibility as a buyer.

It will also show your tax credit history. This may show your tax statements, verification of income, investment certificates, and other financial authentication.

Step 4. Negotiate with the seller

Of course, you will always want to try and get a lower purchase price, but you never want the offer to be too low that it is insulting. Make sure the price you offer reflects current market conditions so that the seller will want to negotiate with you.

During this time, you will also want to ask for showings of the property or land. Never buy a property that you haven’t seen and had inspected.

During this time, you will give 1-5 percent of the price as earnest money to show the seller that you are serious and can afford the purchase price. Adding contingencies during time is also important.

There are 4 main types of contingencies:

  • Zoning – the buyer needs permits before buying the property such as getting approval for a restaurant before putting it on the land.
  • Inspection – this means the contract will still be valid even if there are new liabilities found such as repairs needed for plumbing, electrical, or within the foundation.
  • Financing – this says the contract is void if the buyer is not able to obtain the proper financing
  • Environmental – for certain properties, there will need to be soil testing and another environmental testing

Step 5. Close the agreement

This is when you will meet with the buyer and make the actual transaction including the finances. Most people choose to meet in a title office or a lawyer’s office. They will verify all of the deeds and make sure that the funds are available.

Real estate agents may also come to close the agreement so they can get their commission. The seller will be paid in full during the closing. The Registry of Deeds will also be given and the attorney will fill out and sign all the papers.

Step 6. Fill out the deed

Almost all counties have a recorder or registry of deeds where the local government keeps all the local property records. File the deed and pay any of the transfer or sales taxes. This would also have been listed in the closing agreement, so you know the amount ahead of time.

After the deed has been filled out and filed, the name will be officially in the buyer.

What Information Should Be Included in the Agreement?

There are a few things that need to be included in the agreement so that you can make sure you have all the necessary items.

Agreement Date

This is the day that both people agreed to start the real estate purchase transaction. It is a good point of reference for both parties to know when the agreement was reached.

Seller

This should be the full name of the person as well as their business address.

Buyer

This will either the full name of the person or business entity that is purchasing the piece of commercial real estate.

Classification

This will need to be a complete description of the real estate being sold and in the proper categories. Make sure that all the information is listed correctly and checked.

Street Address

Make sure to include the full address of the physical location of the commercial real estate. This will be the address of the property itself, not the seller’s address.

Tax Parcel Information

This information is usually found by reviewing the property deed. If there is not a deed, go to the Counter Recorder Office of the county where the real estate property is located. The tax parcel information could be a Parcel ID or a Tax Map & Lot.

Personal Property

This will be anything else that the seller owns that is part of the purchase price. It will make sure the buyer is entitled to everything they are paying for. It usually includes things like advertising displays or prepaid service subscriptions.

Purchase Price

This is the exact purchase price that the real estate is being sold for. Make sure to write it down exactly and add how the buyer will be making the purchase. You will check one of the three choices given for the way the property is being purchased.

An all-cash offer means the buyer does not have any financing. The date has to be listed on the exact time and day that the buyer is giving the money to the seller.

Bank financing is when the buyer is using funds from a bank or other financial institution. The due date should also be listed and a record that the buyer has access to the funds that are listed. In some cases, the seller can also cancel the agreement after a certain amount of days if the buyer can’t show proof of access to the finances. This date should be listed.

Seller financing is when the buyer has obtained financing for the purchase of the commercial real estate’s seller. It will need to include the loan amount, the down payment, the interest rate, and the number of months or years that the seller has to satisfy the loan amount.

Earnest Money Deposit

This will include the earnest money deposit which is how much money the buyer is giving to show their good intent. This section will also include the earnest money deadline, escrow decision, and escrow agent.

The escrow agent is the entity that will hold the earnest money until the sale has been completed.

Inspection period

This will need to list the time that the buyer has to complete the inspection. It also needs to be listed that the result decision will be based on factors that may make the agreement void.

Title

Record the type of deed that is transferring the ownership. It should also include the title insurance and the termination deadline.

There will also need to be a cure period and a survey if requested along with the costs.

Closing

List the closing date and the closing costs. The final sections will also include the sale contingency, assignability of rights, notices for the buyer and seller, and disclosures.  Some also include a section for governing law and offer expirations.

Filling Out the Commercial Property Purchase Agreement Template?

Filling out the form is extremely important and will need to be done correctly to avoid problems. This part is mainly reviewing all the fine print and getting signatures. There are three signatures and sections needed.

Step 1. Identify the parties

Write in the date that the agreement is taking place. Next, write the names of the buyer and the seller along with both of their mailing addresses.

Step 2. Enter the property description

Write a detailed description of the property including the address and location. Include the lot number if it’s a piece of land.

Step 3. Indicate the purchase price

Write the agreed-upon purchase price by the buyer and seller.

Step 4. Identify commissions

If a broker or agent is getting a commission, indicate the amount.

Step 5. Provide additional provisions

If the buyer and seller have agreed on additional provisions, write them here. If not, leave it blank.

Step 6. Sign the agreement

The buyer and seller will need to sign and print their names. The escrow agent will also sign and date their name.

Published: Jun 25, 2021