Commercial Real Estate Mistakes To Avoid

If you’re new to the commercial real estate world or are looking at your first investment property, here are some points to consider before signing on the dotted line. 

Whose Name Goes on the Commercial Real Estate Paperwork?

In most cases, your business should purchase commercial property in the business’s name, not your own name. You’ll protect yourself from liability should there be an accident on the property or a problem with the title. It’s best to speak with an attorney who is familiar with commercial real estate matters before making a final determination on whether your name or your business’s name should appear on the purchase agreement. 

What Was the Commercial Property Used for in the Past?

It’s extremely important to know the property’s history. What may look like a hip, tiny restaurant now may have been a gas station or environmentally-regulated, hazardous waste site. Perhaps the prior sale happened decades ago before certain regulations took effect, or the property was inherited, repurposed and reopened on top of a chemical hazard before current regulations were in place. An experienced attorney can help investigate the history and the title and clear the way for sale and financing.

Commercial Zoning and Licensing

Evaluate and investigate the permissible land use for a property. If you plan to keep any structures that are present on the property, you must understand if you are legally allowed to operate your type of business on this particular property. The zoning laws governing the property determine the proper use and occupancy.

Additionally, you can’t always just move your business into an empty building on the property after the closing. You may need a new occupancy license or permit to operate. 

Commercial Loan Applications and Underwriting

Even before you start your search, explore lending options with several lenders. It’s important to understand what your lender will require before applying for a loan to purchase your property. You should also know what amount you’ll qualify for, if the lender will restrict the kind or location of the property you buy, or impose other restrictions on the loan qualification process. 

You should also understand your short- and long-term expectations for a property. Create a budget and plan for your move up to a year ahead of time. Investigate your up-front and closing costs, monthly expenses, mortgage expenses and what you need to generate in income each month to cover these expenses. 

Location, Location, Location

This is the cardinal rule in any real estate purchase. Choosing the wrong location can spell disaster for your business if there is no traffic or for resale in the future. Your broker can help you analyze the factors that are important to your business to see if a specific property makes financial sense for you. Don’t buy on emotion. You should also consider the intangibles like: 

  • Employee security and commuting distances
  • Traffic patterns and neighborhood demographics
  • Will customers come if they perceive that the neighborhood is not safe

Rely on Attorneys With Commercial Real Estate Experience

The most important thing you can do throughout the purchase process is to perform your due diligence on the entire transaction. Your broker or agent is knowledgeable, but not objective and independent from the sale or purchase. 

Work with an attorney with a history of commercial real estate experience for dedicated help. If you’re in Texas, we welcome you to reach out to us. Contact us as soon as possible to review your property’s details, title and history. 

Planning for a Home Inspection in Texas

You have cleaned outside and inside to make your house attractive to buyers. You even may have  gotten rid of a few things. But don’t forget to prepare for the home inspection.

Whether a buyer is planning to live in the house or rent it, he or she will need to be assured of which systems work and which don’t. If the buyer isn’t happy with the outcome of the home inspection, they may cancel the contract or ask to renegotiate the price, as the home inspection is a contingency in most contracts.

One of the first actions to be taken once a contract to sell the property is signed is that the seller must provide a Seller’s Disclosure of the property condition in writing to the purchaser.

“Seller disclosures in Texas are governed by Texas Property Code Section §5.008. That statute provides: ‘A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice’ of material defects in the property. The statute asks sellers to use the disclosure form developed by the Texas Real Estate Commission (TREC), which is a state agency charged with generally overseeing the real estate market.

“This form must be delivered to the buyer ‘on or before the effective date’ of the property purchase contract. In other words, you cannot have the buyer sign the purchase contract and become bound by it, and then a week later, hand the buyer a disclosure form saying that the electricity in the house does not work.” 1

Failure by the seller to accurately disclose known property defects can result in serious legal issues for the seller. A seller can be sued for misrepresentation, fraud, and even violation of the Texas Deceptive Trade Practices Act for intentional concealment of known property defects that go undisclosed.

I have consulted with numerous homeowners over the past several years who were sold properties, sometimes by investors, only to discover that serious property defects were covered up cosmetically and not disclosed. Such actions by sellers have often resulted in extended litigation, costing both sides a great deal of money.

The inspector’s job then is to report all deficiencies and/or safety violations according to code, so everything will be inspected, not just the items identified in the Seller’s Disclosure of property condition.

You may expect that the foundation, shingles, gutters, toilets, plumbing and electrical will be checked. But don’t forget that the not-so-obvious will be reported, such as cracks, water stains, broken windows, and improper venting.

To be competitive, you’ll want to prepare for the home inspection by following these guidelines.

  1. Sometimes inspectors are early, so be prepared . . . you probably don’t want to see someone poking around outside your bathroom window while you are brushing your teeth.
  2. You know to clean the house; however, to make it easy for the inspector, you may want to go the extra mile, such as cleaning or changing filters, replacing batteries in smoke detectors if needed, replacing torn screens, and trimming trees near the roof.
  3. Even if you have moved prior to selling the home, the utilities must remain connected so the dishwasher, furnace, stove, furnace, A/C and receptacles can be checked.
  4. Ensure all pilot lights are lit.
  5. Make access easy to the A/C, furnace, water heater, garage, basement and attic. This includes removing brush, snow, trash cans, and the like. Provide the garage remote/key as well as keys to any additional buildings. Electrical boxes and sprinkler systems must be available for inspection. Unlock gates.
  6. If you have replaced the roof, furnace, A/C or other item, fixed a leaky faucet, or have proof of an insurance claim, give the inspector the documentation.
  7. You and your pets should leave the house for at least three hours.

If there are any items that do not pass inspection, you must decide whether to make the repairs and not take a chance on losing a prospective buyer or try to negotiate with a buyer. For example, you may agree to fix some items or reduce the price of the home to the degree necessary for the repairs to be made.

Being prepared for the home inspection is an important step in the sales process and will give you an advantage in a competitive housing market!

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1Farkas, Brian. “Selling a Texas Home: What Are My Disclosure Obligations?” https://www.nolo.com/legal-encyclopedia/selling-texas-home-disclosure-obligations.html

References

Farkas, Brian. “Selling a Texas Home: What Are My Disclosure Obligations?” https://www.nolo.com/legal-encyclopedia/selling-texas-home-disclosure-obligations.html

Gordon, Lisa (2017, March 14). “Selling Your House? Better Prepare for the Home Inspection”. https://www.realtor.com/advice/sell/prepare-home-inspection/

Weintraub, Elizabeth (2018, August 24). “How to Get Ready for a Home Inspection”. https://www.thebalance.com/get-ready-for-a-home-inspection-1798690

Zillow’s Home Sellers Guide. “How to Prepare for a Home Inspection”. https://www.nolo.com/legal-encycopedia/selling-texas-home-disclosure-obligations.html

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2018. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | Board Certified Residential and Commercial Real Estate Attorney | The Lonergan Law Firm | escrow2@lonerganlaw.com | 214-503-7509

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3 Reasons to Use a Real Estate Attorney When Buying a Home

Buying a home is one of the biggest, most important purchases you’ll make during your lifetime. You’re investing a lot of money while committing to making monthly payments for up to 30 years. 

Before you sign on the dotted line, protect yourself. Make sure to involve one of our experienced real estate attorneys right from the start. 

3 Reasons to Hire an Attorney at the Outset of the Home Buying Journey

You’ll want to enjoy your home for many years to come without worrying about hidden legal and title problems that the seller should have disclosed. Here are three reasons to have a lawyer involved in a real estate transaction from the beginning: 

1. To Avoid Title Issues

Title issues come up in many contexts, including zoning and estate matters. However, some of the most common problems arise when:  

  • A creditor filed a lien on the home against a seller, preventing the seller from selling the home
  • The seller is divorced but the former spouse’s name is still on the deed
  • Children inherit a property but not all of them agree to sell it, an attorney can help negotiate the purchase with the remaining siblings who inherited a share of the property. 

2. To Protect You When Buying a Foreclosed Property 

Buying a foreclosed property is attractive because there are many bargains to be found. Yet, the process is complex. Novice buyers can be on the hook for hidden fees and costs on a disaster of a property that is sold “as-is.” 

If you’ve never purchased a foreclosed property before, you’ll definitely want to involve a lawyer as soon as possible. A lawyer can explain the risks and benefits and protect your interests at the same time. The upside is that you can find a suitable, well-priced property after doing your due diligence and having a lawyer represent you. 

3. To Prevent Problems Before and After Closing

Even after a smooth closing, problems can come up. Real estate agents alone can’t always predict legal problems and aren’t trained to spot them. Most agents just want to get the deal done and closed on schedule. 

But what if you later discover a non-conforming addition, hazardous waste or your pre-closing inspection reveals a serious problem like radon or a serious rodent or snake infestation? Some agents will convince clients to allow sellers to “fix” a problem after the sale closes or adjust the price. 

We can be involved in your purchase from beginning to end. If you involve us early, you could save yourself a lot of time, aggravation and money later. 

A Lawyer Can Help Your Transaction Go More Smoothly

We are a trusted, full-service Dallas real estate law firm and have helped people buy and sell real estate for decades. Please email or call us at 214-760-6768 to learn about how we can help make your home purchase and closing go smoothly. 

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From Contract to Closing

You’ve found the house of your dreams and you can hardly wait for moving day! If you are a Real Estate Investor, the property is your next deal and you are looking forward to rehabbing and renting or selling. Either way, your excitement level is high and you’re ready to get started.

There are important steps to take before settling into the sofa in this new home and each one is very important and can have financial consequences.

  1. Negotiate the contract with the seller. If your transaction involves a realtor, he or she will supply the contract and handle the negotiation. If you are buying a property directly from the owner, we suggest you involve a Real Estate Attorney to assist you with the negotiations.
  2. Apply for funding. Immediately after the contract is negotiated, the buyer needs to make application at a reputable lender. Buyers will need to provide all necessary information to the lender such as income, assets, debts and credit history. In tight markets where houses are hard to find, it may be necessary to become approved for a loan before looking for a house so you can make an offer on the same day you find the one you want. The realtor will need to stay in constant contact with the lender regarding buyer’s application.
  3. Fully evaluate the property. The contract has a provision for “termination options”. The buyer pays a negotiated amount for the number of days necessary to complete their due diligence. A complete inspection of the property, including a termite inspection, should be ordered and paid for by the buyer from an inspector deemed to be an expert. After reviewing the inspection report, the buyer(s) has a right to request that the seller(s) address all concerns they may have about the property, which may result in a renegotiation, or even a termination, of the contract.
  4. Get the property appraised. The lender will require a property appraisal to make sure that its value is equal to or greater than the requested loan amount. The appraiser’s evaluation must prove that the property is worth at least as much as the buyer agreed to pay.
  5. Wait on loan approval! When the lender has completed the due diligence and made a decision on the loan, the buyer will be notified. The buyer’s agent as well as the seller’s agent should work to ensure that the lender has all the documents necessary and that all steps are taken in the loan approval process in order to avoid a delay in the closing.
  6. Select a title company, preferably one with a Board Certified Residential Real Estate Attorney, who will close the title or supervise the closing and has years of operational experience.
  • The title company does a title search and determines that the real estate title is legitimate and whom the title is vested in, so the buyer can be confident that he or she is the legal owner of the real estate.
  • This process includes searching for outstanding mortgages, judgments, liens, restrictions, leases, easements, unpaid taxes, or other encumbrances against the property that may affect ownership.
  • The title company will strongly recommend to the buyer to purchase title insurance in case the title examiner or other party had made a mistake in the title search or in case there is some unknown issue back in the chain of title, such as a forgery, for example. This insurance is another level of protection. If the buyer chooses (or if the seller is contractually obligated) to purchase the title insurance for the property, the title company then issues a title insurance policy. This insurance protects the owner and/or lender from potential claims or lawsuits that may result over ownership disputes.
  • Bring the following to the closing – valid photo id (driver’s license or passport), cashier’s check or certified check for the down payment and closing costs (never bring cash), proof of insurance, and the final purchase and sales contract. In case there is a small fee that was unanticipated, it is always a good idea to bring a blank personal check.
  • Expect to sign these and other documents at the title closing. (a) Closing Disclosure or HUD-1 Settlement Statement (multiple pages), (b) Warranty Deed, and (c) title company requested documents.
  1. Purchase homeowners’ insurance. If you are the intended homeowner, expect the lender to have pre-determined requirements. The seller’s agent should help the buyer ensure that proper coverage is purchased. If you are purchasing for cash or if you are a real estate investor, depending on the transaction, either you will purchase it or an end-buyer will acquire the insurance with you as an additional insured.
  2. Transfer utilities. It is prudent for the buyer and seller to make arrangements for the utilities to be transferred to the buyer if necessary, usually upon the closing date. Buyers may need to make application to the various utility companies.

CONCLUSION

Purchasing a house for yourself or as an investor is much more than one big step! It is a series of important actions that must be completed in order to ensure that you will be the lawful owner of the property, take only a suitable financial risk in securing funding, and that the property is in good shape to mitigate big surprises after you take possession.

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© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | The Lonergan Law Firm, PLLC                                escrow2@lonerganlaw.com | 214-503-7509