The last word about final paperwork on a real estate transaction is recordation. Until the deal closes (by using the term close means record) there is nothing final about it. Even the terminology itself, misused, has caused delays in culmination. For the inexperienced investor and lender alike, stating that the loan is finalized or the funding has closed does not equate to the transfer of property. In short, it isn’t over until it’s over.
Both Buyer and Seller in any sales transaction can avoid unnecessary delays by having the required elements addressed well before the contractual closing date. Why? The likelihood of an unforeseen issue rearing its ugly head somewhere during the escrow period is high. While an investor may have the best representation available in the business, the fact remains— getting a commercial deal done and done right require many players in the game. Each participant may play the game differently. Sometimes the rules are followed, modified or forgotten–accidentally on purpose. While a Broker or Attorney may direct all the players to the same end, the successful closing, it happens with the consistent succession of instructions being presented, heard, and followed through by the appropriate people in a timely manner. The margin for error due to miss communication must remain slight. How does one accomplish such a feat?
Co-exist with the first words of final paperwork…due diligence.
What type of due diligence is required? The needs may vary depending on the type of property and Buyer and Seller. A Buyer must provide information to their lender to facilitate loan process and final approval. A Seller must disclose information about the property that is material to the Buyer. Disclose, disclose, disclose. Are there environmental issues? Permits required, surveys needed, clear title, and adequate parking ingress and egress? Does the Buyer require approval of a Zoning Variance before closing and is this a contract contingency? Is the property tenant-occupied and are there verifiable leases and rent rolls available for perusal? Is the Seller part of an LLC, requiring Articles of Organization and more? Does the deal involve a 1031 exchange, contingent on timely closing with penalties in place for lack of performance?
In addition, what may be an unforeseen issue to one party may be a deliberate strategic negotiation point by the other-like a good game of chess. It happens at the end of the escrow period, often at the closing table. Either the Buyer or the Seller decides in the eleventh hour to change a term or condition, usually citing a “legal” reason for the demand but behind it lies the truth-it somehow financially serves s/he best. In the market of real estate, it’s considered good business. How do you prepare for the unexpected final heat of negotiations? Like chess, you stand stronger than a pawn if you exercise patience. Before you make a move to alter your negotiations, consider how your move will affect the other party strategically and financially. Will it elicit a negative response doing irreversible damage forcing a breach?
Reconsider and modify your tactics sooner than later or you may never sign final documents. The success of your commercial property transaction closing involves the culpability and competency of your financial advisors, counsel, real estate brokers, title and escrow officers. Ask yourself, “do I know they will get it done?” If so, ask yourself a final question, “Do I have the commitment in this transaction to provide what is needed during escrow?” Without your commitment and that of everyone involved, final paperwork could remain something talked about but never seen.
Trail Potter is a contributor to the Abacus Financial writing team based in Houston, Texas. Abacus Financial – http://www.abacus-financial.net (Los Angeles, CA)- is the national expert in workouts of distressed commercial real estate borrowers and operating companies.
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