Finding $20 in your coat pocket is a welcomed surprise, whereas finding out that your battery died and your car won’t start is the kind of surprise that nobody likes. When it comes to purchasing commercial real estate, you want to do everything you can to avoid similar unwelcome surprises that could cause problems for your purchase or your financial future. In today’s blog, we take a closer look at three unwelcome surprises you may encounter if you’re not prepared, and we discuss some ways to account for these potential issues so they don’t cause problems during your latest commercial purchase.
Avoiding Unwanted Surprises In Commercial Real Estate
Let’s dive into some aspects of the commercial real estate acquisition process that can get overlooked, which may lead to some unwelcome surprises if you’re not careful.
-
Title Issues - If you don’t conduct a thorough title search, you may miss issues with the property. Once you acquire the property, those issues will become your problems. Moreover, these potential title defects can hurt your finances in a number of ways. The most extreme example is if you end up purchasing a property from someone who did not have the legal right to sell it, meaning you may be out money and not have legal ownership of the property. A more common example is that unknown title defects can hurt you at the negotiating table. You can oftentimes use title defects as a bargaining chip during negotiations, but if you are unaware of the issues, you’re missing out on this leverage. There’s also the possibility that you could miss a tax lien on the property, meaning that if you become the property owner, it is now your responsibility to settle unpaid taxes, which can mean more money out of your pocket. Trust the title search process to a team of professionals who can ensure the search is conducted properly and efficiently.
-
Forgoing Title Insurance - A professional title search can uncover issues with a title, but there is no guarantee that every single potential issue will be caught during every title investigation. Sometimes there is limited information about a property and new information only comes to light years down the road after you’ve acquired the property. In these situations, you can protect against a surprise claim on your property with commercial title insurance. Oftentimes a commercial title insurance policy is required by your mortgage lender, but you can also purchase a one-time policy that protects the buyer in the event of a claim on their property. Even if the claim turns out to be invalid, you can take solace in knowing that it will be your insurance provider’s mess to sort out, not yours. And if the claim turns out to be valid, you’ll be very happy knowing that your financial interests are protected.
-
Property Tax Assessments - During the course of your research into a property, you’ll probably look to uncover what the current owner pays in property taxes each year. This can help you budget for expected expenses that will be added into your mortgage. However, there’s a good chance that your property tax bill is based on a lower amount than what you’ll purchase the property for. You can expect your property to be assessed by a state tax official shortly after the completion of the sale, and if the valuation of the property significantly increases, you can expect your property tax amount to go up as well. It’s a good idea to expect that the current property taxes is the minimum you may pay, but odds are your property taxes will go up if your purchase price is well above the current assessed value.
To avoid unwelcomed surprises that could further complicate your next commercial purchase, connect with the title service team at Commercial Partners. For more information, give us a call today at (612) 337-2470.