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Differences Between Commercial and Residential Real Estate Transactions

Differences Between Commercial and Residential Real Estate Transactions

Differences Between Commercial and Residential Real Estate Transactions

transactionIt’s a common misconception that commercial brokers and residential real estate agents perform the same job functions. While both professions share many similarities (they both work in real estate, after all), there are many differences between commercial and residential real estate professionals. For the purpose of this blog, we’re going to focus on one of the biggest differences: the closing process.

 

First and foremost, a property isn’t purchased or “owned” until the residential or commercial closing is complete. Most people are aware of this, but for those individuals who are not, a deal falling through during the closing process can cause a number of unforeseen issues if you’re not prepared. It’s important to have proper representation and a reliable title company helping you throughout the closing process to avoid such disasters and mishaps.

 

In residential real estate, closings work in a very systematic way. The buyer will provide all of the necessary documents requested by their lender before getting approval for a loan. Once the loan is approved, a title search is performed and titled insurance is purchased. While all of this is going on, the down payment on the house is getting processed and the sales contract is getting reviewed and signed by all parties involved. The deed or mortgage is then transferred to the lender, the closing costs are paid, and the buyer receives the key to their brand new home.

 

Commercial closings are a bit different from residential closings. For instance, there are generally more parties involved in commercial real estate transactions than residential real estate transactions. Think about it, commercial real estate typically involves office buildings and storefronts owned by companies looking to generate a profit from their purchase; not an individual looking for a new place to call home. Therefore, larger entities usually have more decision makers on both sides of the deal, which can make the closing process a little more challenging.

 

In addition to multiple parties, there are tenants that need to be taken into consideration. Transferring commercial real estate ownerships may require the assignment and assumption of leases. For example, if the building being purchased is an apartment complex with multiple tenants, the buyer will also have to take over the seller’s leasing obligations. If this occurs, negotiations and new paperwork for the tenants may be needed before the deal can close.

 

Lastly, there are different laws that regulate closing costs and procedures for people in commercial and residential real estate. According to Real Estate Settlement Procedures Act (RESPA), commercial properties with more than four units do not have to fill out forms that are usually required for residential transactions. That’s just one example. There are many regulations that apply to residential real estate. There is less regulation in commercial, which also means there is more latitude in the way a deal can be put together, often making it more complex. As a result of the price of the properties and the complexities of the transactions, commercial real estate transactions often have higher closing costs.

 

In the end, it’s important you do your homework and align yourself with a reliable title company to make sure you understand both processes fully. If you’re someone who owns a business and would like to own a house, or vice versa, it may benefit you to do further research on these differences. If you have any questions regarding residential real estate, please contact Jonie Alden (jonie.alden@ltaz.com), for commercial real estate Vicki Etherton (vickie.etherton@ltaz.com) at Landmark Title Assurance Agency today!

 

2 thoughts on “Differences Between Commercial and Residential Real Estate Transactions
  1. Real Estate Cambodia says:

    This is such a great read! Thanks for sharing!

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