What are some common commercial buyer due diligence mistakes?

Commercial real estate transactions are handled differently from residential ones. With the former, there is less governmental oversight and few disclosures that buyers and sellers must sign. This can create liability issues for both parties involved in the transaction.

Following due diligence checklists can minimize both a buyer and seller’s liability risk. If both parties know what common due diligence mistakes people make are, they’ll have less of a chance of making them themselves.

One common mistake that buyers of commercial properties make is that they don’t take time to find out if the property’s construction complies with existing city building codes. Buyers often only find this out once they’re fined for it not meeting American Disability Association (ADA) standards. Or, they find out when they apply for a building permit to make modifications to it.

Another common mistake buyers make is agreeing to a purchase price that exceeds what other comparable properties are going for in the area. You may find that starting by talking with your lender about how much that they’d loan you is a good starting place.

While this amount is largely contingent upon your credit, a lender also considers a building’s condition and age, similar properties in the area and environmental concerns. Whatever their cap is may also need to be yours.

When consulting with your lender, you’ll also want to find out if they accept third party environmental or property inspection reports. If they won’t, then you may have to use their vendors. This may come at a steep cost. This may affect how much you’re willing to offer the seller.

Other common mistakes that buyers of commercial properties make include not thoroughly inspecting the building for potential costly flaws or not getting to know tenants and any outstanding issues that exist with them. Buyers who don’t carefully study closing statements may end up getting blindsided as well.

While it’s true that commercial buyers can allow a title company to handle their real estate closing, there are many reasons that they shouldn’t. They’re not required to carry as much in liability insurance or to meet high licensing standards that lawyers are held to. They also lack the legal knowledge of and attention to due diligence issues that an experienced Melbourne commercial property closings attorney will give to your case.

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