Closing Costs are expenses incurred in the closing of a real estate or mortgage transaction. These expenses include loan fees, title fees, appraisal fees, processing fees, etc. The costs are normally much higher for a commercial real estate deal than a residential closing due to the additional research required in not only closing on the physical property but the financial aspects as well.
Closing costs can constitute significant transaction expenses and must be factored into the Buyer’s business decision-making process in determining whether to proceed with a commercial real estate transaction. They are inescapable expenditures that add to Buyer’s cost of acquiring commercial real estate. They must be taken into account to determine the “true purchase price” to be paid by the Buyer to acquire any given project and to accurately calculate the anticipated yield on investment.
Some closing costs may be shifted to the Seller through custom or effective contract negotiation, but many will unavoidably fall on the Buyer. These can easily total tens of thousands of dollars in an even moderately sized commercial real estate transaction in the $1,000,000 to $5,000,000 price range. The buyer should have it stated in the contract which party will be responsible for each cost at closing such as title insurance, deed stamps, surveys and settlement fees just to name a few. However, since RESPA (Real Estate Settlement and Procedures Act) does not apply to properties that have more than 4 residential units, the lender is not restricted in what they can collect from the buyer at closing.