Navigating Commercial Real Estate Escrow: A Comprehensive Guide
In commercial real estate escrow, a trustworthy 3rd party is involved apart from the buyer and seller. The buyer and seller first enter into what is known as an escrow agreement.
The escrow agreement delineates the responsibilities of both the buyer and the seller. Basically, these are the terms of the deal. Cash payment is contingent on the buyer and the seller completing all of their responsibilities outlined in the escrow agreement.
While the buyer and the seller are completing their escrow agreement responsibilities, a neutral and trustworthy 3rd party securely holds the cash amount. This party is known as the escrow agent.
The escrow agent will only release these funds to the seller when all responsibilities mentioned in the escrow agreement are fulfilled.
Hence, the escrow agent has a crucial role in a commercial real estate property deal. With an escrow agent, your cash is in safe hands. It does not matter whether you are the buyer or the seller. The escrow agent provides financial protection to both parties.
If you are the seller, you can be confident that cash payment will be made in full once all terms and conditions of the escrow agreement are fulfilled. You won’t have to worry about nonpayment or payment delays.
If you are the buyer, you will have peace of mind knowing that your precious cash will be released (to the seller) only when the seller carries out all obligations. Hence, your money is safe.
Now that you know the basics of commercial real estate escrow, here are the details.
Setting Escrow Agreement Terms
The initial phase of commercial real estate escrow entails establishing the contract terms. To this end, both parties hold talks and decide what is incumbent on each party.
They will have to agree on the escrow agent. The payment amount must also be decided. Both parties must also reach an agreement on what their obligations are. They have to also decide the time frame for fulfilling these obligations.
Apart from these, both parties must consider several other terms and conditions that must be included in the escrow agreement.
Initiating Escrow Transaction
The escrow agent will commence the escrow procedure after making sure that all required documents are available.
Before the escrow transaction begins, you will need relevant information like policy liability amounts, property address, selling price, contact details of professional representatives (like real estate agents or attorneys), and more.
Since commercial real estate entails several complexities, it is better to execute it via legal entities (LLP or LLC) instead of individual parties. This helps to reduce liabilities as well as costs.
Multiple legal entities can have ownership of the commercial property. All of these legal entities need a person who has the signing authority. It means that this individual should have the legal right to sign on behalf of these entities.
Signing authority proof requires verification. This is a vital process of the escrow commercial real estate transaction.
Unless the signing authority is verified, funds entered into escrow will not be released. So although this step is essential, it might take some time, especially when several other contracts are involved.
Closing Documents and Title Report
The documents required depend on the nature of the escrow transaction.
Zoning warranties, environmental reports, deeds, and other key documents are often necessary for closing.
These are just rudimentary details of a commercial escrow transaction. Such an intricate process involves other steps, and there are certain issues that you must be aware of.
That is why you need to get in touch with the premier commercial escrow company, like Expert Title Company, onboard before starting any real estate transaction.
With our long experience and professional competence, we can successfully handle all kinds of challenges that often ensue during a commercial real estate transaction.
Mitigate financial risk by contacting the renowned escrow company with a proven track record.