If asked to compare residential and commercial real estate, someone familiar with each both might point to government regulation as one difference between them. Government officials closely regulate the residential real estate industry. The same can’t be said about commercial real estate. There aren’t countless standard forms, such as disclosures that parties to residential real estate transactions must sign on the commercial side of things.
While the lack of government regulations in the commercial real estate industry may appeal to some, it can be a drawback from others’ perspective. It can potentially expose buyers to liability issues resulting in disputes.
Due diligence issues that commercial buyers should worry about
Commercial buyers often pay more for property than they can afford or what comparable options are going for. While making an offer that exceeds the asking price may be necessary if there’s competition for it, you may need to make a lower one if it’s been on the market for an extended period. You should also weigh how much you can borrow from your lender before making an offer.
Another big mistake commercial buyers make is not having an inspection performed on the property before they make the purchase. An experienced inspector could potentially identify situations in which contractors failed to adhere to local building codes or costly structural or poorly functioning systems components — all of which could be costly to address.
Yet another factor that you’ll want to prepare yourself for as a commercial real estate buyer is unexpected costs. Lenders often have their borrowers hire someone to perform environmental or other inspections before they extend their loans. You may find that hiring someone of your choosing is more economical than going with your lender’s designee.
There’s a lot of room for negotiation when entering into a commercial real estate contract. You may find it necessary to have some contingencies added to your contract to ensure that your rights are protected.