Do you know how residential and commercial closings differ?

Do you know how residential and commercial closings differ?

On Behalf of | Feb 5, 2021 | Real Estate Law |

Many assume that the real estate closing process is relatively standard, but that’s not the case. The process for a commercial property is often more complicated than the residential one as it involves more money exchanging hands. Government regulators require residential buyers and sellers to use specific contracts and make certain disclosures when doing business with one another.

You may find it helpful to learn more about how these two processes compare if you’re in the real estate market here in California. 

The closing process for residential and commercial real estate

Both residential and commercial buyers make an escrow payment to show their interest in moving forward with purchasing a property. An escrow agent maintains those funds in a separate account for disbursement to the seller at the closing. They can release the funds from the account if the buyer or seller cancel their purchase agreement, provided that the contract allows them to do so. 

Anyone looking to purchase residential or commercial real estate should perform a title search to see if it has any zoning issues or easements and whether any encumbrances, such as tax liens, exist. Commercial buyers must generally review the title for errors before filing it with the California Secretary of State. Parties to residential real estate transactions must file updated deeds with the county in which the property is located. 

A corporation’s board or ownership will generally try to limit their company’s liability risk by requiring proof that the person offering the real estate for sale has the necessary authorization to complete such a transaction. A title agency may need to show evidence of this before the distribution of money in escrow. 

Parties to residential real estate transactions must adhere to the Real Estate Settlement Procedures Act (RESPA), whereas those involved in commercial transactions don’t have to. The latter process empowers buyers. They enjoy significant leeway when requesting that sellers make post-contract modifications that may push back the closing date a bit. 

The role of lawyers in the closing process

Many jurisdictions don’t require real estate attorneys to preside over closings, but they should. In particular, since commercial buyers lack some of the protections that residential buyers have, it’s wisest to have an advocate involved from the very start. Your lawyer can also help you address any obstacles you may encounter as part of the California real estate purchasing process. 

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