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116 Part II:Getting Started Making Deals
Setting the sails for the closing date
As you work through all of your due diligence tasks, it’s vitally important that you keep an eye on the day that your contract says you’re supposed to close. If you know that you won’t be able to complete all of your due diligence tasks or you have encountered problems and need more time to resolve them, you have a few choices to make. You have the following three options:
U You can back out of the deal, especially if the problems you encountered make this deal a bad one.
U You can get an extension of time to complete your due diligence.
U You can strive to complete your due diligence and set the sails for the closing date.
The goal here is to get to a point in giving this deal the green light or the red light. If you’re giving the green light, assume the following:
U The physical inspection due diligence is complete.
U The financial inspection due diligence is complete.
U The legal inspection due diligence is complete.
U You have satisfied every contingency clause in the contract.
U You have completed your renegotiating with the seller and everything agreed on is in writing.
Chapter 7 Closing Your Deal
In This Chapter
© Understanding the basics of commercial closing © Minding the details before signing the paperwork © Knowing what to expect on closing day
© Taking ownership of your property
his is the day you’ve been waiting for: The day when you finally get to close your deal! Whether this deal is your first or your tenth, every clos-
ing day is special. All those hours spent negotiating, late evenings spent crunching the numbers, long days spent walking through and assessing the property, sleepless nights spent waiting for loan approval, not to mention all that time spent dealing with your partners and handling investors — all of it is scheduled to come to an end on closing day. This day should be one of cel-ebration and accomplishment. Ultimately, closing your deal is the beginning of a new investment in a great property, in your bright future, and in your hardworking team.
In this chapter, we tell you where getting to the closing table actually begins, we help you decide when to pull the trigger, and we help you identify when a deal is a real deal. We also help you dodge those inevitable delays in closing. Finally, we explain what’s involved in taking legal ownership and what crucial steps you need to take immediately after closing.
Residential closing versus commercial closing
Q: What’s the difference between closing on a single-family residence and closing on an 80,000-square-foot shopping center?
A:Very little. If you’ve closed on a house, you’re familiar with the nuts and bolts of closing your first commercial property. The basics of a
residential closing — such as opening an escrow account, handling deposits, dealing with closing costs, obtaining title insurance, transferring titles, and moving buyer and seller monies — also take place with the closing of a commercial property.
118 Part II:Getting Started Making Deals
The Anatomy of a Close
In order to really understand how a deal gets closed and how you get the keys or a big check at the end, it helps to look at what a commercial deal entails — from the signing of the contract to the closing day. The following big-picture view helps you get a handle on what takes place with the person making the offer, the escrow/title company, the lender, and the attorney:
1. The buyer makes an offer to purchase and, if the seller likes the offer, the seller accepts and signs it.
Congratulations, you’re officially under contract!
2. The buyer opens escrow with an escrow/title company or attorney and sends in earnest money as a deposit to the escrow holder.
3. The buyer starts the financing process with his lender and sends nec-essary documents to the lender to qualify both the property and himself (and/or his partners).
4. The buyer does his due diligence (such as reviewing the property’s financial statements and other property-related information as set forth in the contract) and does a physical inspection of the property.
5. The buyer examines the title and removes contract contingencies.
6. The buyer and seller satisfy any remaining obligations as set forth in the contract.
7. The buyer finalizes the loan with the lender by getting an official letter of commitment from the lender.
8. The buyer reviews the closing statement and finalizes any final clos-ing instructions with the escrow company.
9. On closing day, the buyer signs the closing paperwork with the escrow company and makes a down payment.
10. The deed is recorded, monies are disbursed, and the buyer gets the keys.
Congratulations, your deal is closed!
Closing 101: The Basics of Closing a Deal
If you’re brand new to buying and selling real estate, you probably have all kinds of questions regarding the critical stage of closing a deal. Not to worry: Where you have questions, we have answers. Read on.
Chapter 7: Closing Your Deal 119
What is an escrow and who is an escrow officer?
An escrow is a neutral, impartial third party that serves others (the buyer, the seller, the lender, the real estate agents, and the attorneys) in a property transfer. An escrow officer is the central point person throughout the closing process. Her duties include all the following:
U Clearing outstanding liens held against the property
U Disbursing monies to all parties
U Handling the in earnest deposit, the down payment, the loan documents, and the closing fees associated with the property transfer
U Minimizing the chance of fraud when the money and the property are transferred
U Obtaining payoff amounts of loans associated with the property
U Obtaining title insurance
U Ordering the title search and examination for the title report
U Preparing and issuing the final closing statements
U Recording the deed after all deal and legal obligations have been satisfied
U Returning signed loan documents to the lender
The escrow officer is also sometimes referred to as the escrow holder, the title officer, the closing agent, the closer, or the settlement agent. In the eastern half of the United States, attorneys are commonly used to close deals and they often act as the escrow company.
What is title insurance?
After you have legal title of the property, you’re considered the owner. But what happens if the title came to you with a lien against it? What if the liens against the property total thousands of dollars? That’s where title insurance comes into play.
Title insurance insures you against such things as liens, undiscovered liens, improper recording of deeds, and other things that could negatively affect the title. The protection period of the title insurance extends backward, which means that it insures you against losses from the past ownerships of the property. And the insurance is in effect as long as you own the property.
120 Part II:Getting Started Making Deals
If the person you’re buying the property from already has title insurance, you can’t have the current owner transfer his title insurance to you, even if it’s brand new. You have to buy new title insurance yourself. Who pays for the cost of title insurance, the buyer or seller, depends on what’s customary for that city.
Some lenders give you a choice of whether to buy title insurance. We recom-mend that you buy title insurance even if you’re sure there’s nothing wrong with the title. Some title problems can be so bad that they can cause the title to be deemed “unmarketable.” This kind of situation is exactly what title insurance protects you against. Some people think that if they paid cash for the property, they don’t need title insurance. Just because you have a grant deed with your name on it doesn’t mean that you have clear title.
Do I need an attorney for my closing?
All of our East Coast closings were completed through a real estate attorney. On the other hand, all of our West Coast closings were done by escrow/title companies. So whether you need an attorney for your closing depends on where your property is located. Look and see what’s customary in your state or city by asking an experienced local real estate agent.
Attorneys commonly handle commercial real estate closings. And having the help of an attorney is advantageous, because so many things can go wrong during a closing. With all the complex language that’s used in closing paper-work, an attorney can help you wade through it all.
When you hire an attorney to step into the shoes of an escrow company, the attorney will do the traditional escrow company duties, plus they’ll also
U Coordinate the closing date and help keep the buyer and seller sides and the lender on track
U Help review all documents for accuracy
U Personally attend the closing
U Write up any needed contract amendments
Don’t hire your family attorney to close your commercial deal; instead, hire a real estate attorney. Real estate attorneys, unlike general attorneys, are
trained to understand zoning, real estate laws, bylaws, environmental restric-tions, tax issues, and entity issues, among many other small legal — but important — details that can come back and bite you on the rear end.
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