Just like residential real estate in Alaska, a commercial real estate transaction can feel overwhelming. And while the two may be similar in certain aspects, commercial real estate deals tend to require a bit more caution and careful examination exercised on behalf of the parties.
As your local experts in Anchorage and the Mat-Su Valley, Northern Edge Real Estate is here to break down the commercial closing process into the four major steps— escrow, due diligence, signing authority verification, and finally, title and closing documents.
You may recognize this term from the residential real estate side and it’s just as important when dealing with a commercial transaction. While in escrow, funds are held in an account until specific requirements of the escrow agreement have been met or until one party backs out of the deal. Escrow serves as a placeholder until both parties in the sale have come to an agreement.
However, it’s important to remember that commercial sales typically deal with larger amounts than residential sales, therefore escrow is more controlled and formal. The paperwork involved with a commercial sale is also more detailed and extensive than what is involved with buying a home in Alaska.
An escrow agent, commonly the title agent, will be in place to oversee this part of the transaction. As the title agent is familiar with the details of the deal and has no financial stake in its success (they are paid for their services regardless), they are responsible for creating the highly-customized closing documents as well as ensuring all conditions of the agreement have been met before releasing funds to the seller.
2. Due diligence
One major distinction between residential and commercial sales in Alaska involves the Real Estate Settlement Procedures Act (RESPA), or lack thereof. This act is a federal law surrounding home sales that requires sellers to make guarantees or provide warranties to buyers on the condition of the property. In short, it is in place to protect homebuyers and prevents them from purchasing a home that is dangerous or uninhabitable. The RESPA does not apply in commercial real estate transactions.
Parties must perform more due diligence to protect their investments as commercial real estate deals are less regulated. Each side of the transaction must do their due diligence both on the property and the other party involved as there is no RESPA in place to protect them. On the other hand, the lack of RESPA allows both parties to be more creative when structuring the deal itself.
3. Signing Authority Verification
Signing authority ensures that the person signing the final paperwork has the power to do so. For instance, a corporation may be the seller in a transaction, but a person will need to sign the documents on that corporation’s behalf. Signing authority can come in the form of a written grant that gives a specific individual the power to act and may be issued from that corporation or legal entity’s CEO, board of directors or other governing body. This is another layer of paperwork, but it also provides another layer of protection as the escrow funds will not be released until the necessary signing authority documents have been received.
4. Title and closing documents
In the final step of an Alaska commercial real estate closing, a title report and closing documents must be accepted by both the buyer and seller. Closing documents can include assignments of liability, zoning disclosures, warranties, assumption or assignments of leases and any others the parties deem necessary.
As there are factors such as liens that need to be taken into account with a commercial real estate title, the process is much more involved than a residential title. Buyers will need to carefully review the initial report and file their objections or concerns on deadline and the seller must then respond within a certain period of time— or the buyer is able to walk away. Once any issues are settled, the final report will be issued and each party will review for errors and additional concerns before moving on to close the deal.
The process of closing a commercial real estate transaction is much more complicated than that of a residential property, but with a commercial specialist on your side, you will not need to worry! If you have questions about buying or selling commercial property in Alaska, give Northern Edge Real Estate a call and speak to one of our commercial specialists!