The commercial real estate transaction process varies by situation but generally follows three main stages: initial planning, due diligence, and contracting. A well-structured checklist can help streamline the process.
1. Initial Planning and Property Search
The first step involves setting investment goals, including:
- Property type
- Location
- Budget
- Expected returns
Market research is crucial for understanding trends, supply and demand, and potential risks. Identifying suitable properties can be done through online listings, real estate agencies, and industry networking.
2. Due Diligence
Due diligence is the process of verifying facts to mitigate risks. It includes:
- Legal Due Diligence: Examining title records, ownership, regulatory compliance, and contractual obligations.
- Commercial Due Diligence: Assessing market prospects and competition.
- Financial Due Diligence: Reviewing income statements, expenses, and rent rolls.
- Structural Due Diligence: Inspecting the property for structural issues and estimating repair costs.
Seeking professional assistance is advisable to ensure thorough due diligence.
3. Contract Drafting, Review, and Negotiation
Once a property is selected and due diligence begins, negotiation takes place, covering:
- Price
- Financing terms
- Warranties
- Closing timeline
Real estate agreements must be in writing, typically drafted by the seller. However, buyers should review deeds and contracts with legal professionals to ensure fair terms and address legal concerns.
