Who Pays Closing Costs on Commercial Property?

Understanding Closing Costs in Commercial Property Transactions

When purchasing commercial property, closing costs can add up to a significant amount. Understanding who pays these costs can help you prepare financially for the transaction. Typically, closing costs are shared between the buyer and the seller, with specific costs allocated to each party. Here’s a breakdown of common closing costs and who is responsible for paying them.

#### Common Closing Costs for Commercial Property

1. **Loan Origination Fees**:
   - **Who Pays**: Buyer
   - **Details**: These fees are charged by the lender for processing the loan application and can range from 0.5% to 1% of the loan amount.

2. **Appraisal Fees**:
   - **Who Pays**: Buyer
   - **Details**: The buyer usually pays for the property appraisal, which determines the market value of the property. Appraisal fees can vary widely depending on the property size and complexity.

3. **Environmental Site Assessment Fees**:
   - **Who Pays**: Buyer
   - **Details**: Conducting an environmental site assessment is often required to ensure there are no contamination issues. The cost for this assessment typically falls on the buyer.

4. **Title Insurance**:
   - **Who Pays**: Buyer and Seller
   - **Details**: Title insurance protects against title defects. The buyer usually pays for the lender’s title insurance, while the seller may pay for the owner’s title insurance.

5. **Survey Fees**:
   - **Who Pays**: Buyer
   - **Details**: A survey may be required to confirm the property boundaries. This cost is generally borne by the buyer.

6. **Legal Fees**:
   - **Who Pays**: Both Buyer and Seller
   - **Details**: Both parties typically hire their own attorneys to review and finalize the transaction documents, so each party pays their respective legal fees.

7. **Recording Fees**:
   - **Who Pays**: Buyer
   - **Details**: Recording fees are paid to the local government to officially record the new property deed. This is usually the buyer’s responsibility.

8. **Transfer Taxes**:
   - **Who Pays**: Buyer and Seller
   - **Details**: Transfer taxes vary by state and municipality. In some cases, the cost is split between the buyer and the seller, while in other areas, the buyer or seller may be solely responsible.

9. **Broker Commissions**:
   - **Who Pays**: Seller
   - **Details**: The seller typically pays the broker’s commission, which can range from 3% to 6% of the purchase price, depending on the agreement with the broker.

10. **Prorated Property Taxes**:
    - **Who Pays**: Both Buyer and Seller
    - **Details**: Property taxes are prorated based on the closing date. The seller pays for the portion of the year they owned the property, and the buyer pays for the remainder of the year.

11. **Miscellaneous Fees**:
    - **Who Pays**: Buyer
    - **Details**: Other miscellaneous fees, such as inspection fees, utility adjustments, and escrow fees, are generally the responsibility of the buyer.

#### Negotiating Closing Costs

It’s important to note that closing costs are often negotiable. During the negotiation process, the buyer and seller can agree on how to split these costs to make the deal more attractive. For instance, a buyer might negotiate for the seller to cover a larger portion of the closing costs as part of the purchase agreement.

#### Preparing for Closing Costs

To avoid surprises, it’s essential to:
- **Get a Detailed Estimate**: Ask your lender for a detailed estimate of all closing costs early in the process.
- **Budget Accordingly**: Set aside funds specifically for closing costs to ensure you’re financially prepared.
- **Consult Professionals**: Work with a commercial real estate broker and an attorney to understand all potential costs and negotiate the best terms.

Understanding who pays the various closing costs involved in a commercial real estate transaction can help you plan better and ensure a smoother closing process. For personalized assistance with your commercial property purchase and to get expert advice on managing closing costs, reach out to **Atlantic Commercial Lending**, a licensed commercial mortgage brokerage (NMLS ID #2429887). We’re here to help you navigate the complexities of commercial real estate financing.