5 Insanely Important Dates You HAVE to Manage In Your Commercial Real Estate Transaction

Every contract or purchase agreement is a ticking time bomb. The biggest preconceived notion is that time starts ticking when the contract is executed by the last person.

While that may be true for the rest of the parties involved in the transaction, the mortgage financing process should begin before the buyer goes under contract.

Whether you are a commercial real estate broker or a commercial mortgage broker, it is important to advise your clients to start the financing process at least a couple of weeks before they think of signing any agreement to purchase commercial property.

Working with a mortgage professional beforehand will allow the buyer to set realistic expectations for how much debt their operations can take on or whether an investment is worth getting into.

As advisors in the transaction, you have to be aware of specific timelines that will allow you and the buyer to keep a tight grip on how the transaction pans out. Of course, there are always uncontrollable factors like appraisal corrections, legal counsel delays, insurance requirements, and a couple of other factors that are out of our control.

However, by managing these next important timelines, you will provide more value to the transaction and help it move along faster.

Here are 5 critical dates during a commercial real estate transaction:

1. Effective contract date

• This is the date on which the last person executed the contract. For example, if the buyer signs the contract on Wednesday, February 15 but the seller signs the contract on Friday, February 17th, the contract's effective date would be February 17th. It is important to know this date because this is where you can figure out the other timelines.

2. Applying for financing

• This date indicates that the buyer is now a borrower and has started the loan process, otherwise known as financing.

3. Due diligence start date

• This date will be set off when the buyer is given the required documentation regarding the property. This includes leases, surveys, environmental reports (if applicable), property financials, and any other relevant documentation that the buyer should have on hand.

• Appraisal and Environmental

• The appraisal and environmental are third-party reports that are ordered by the lender when financing is involved. A lender will require these third-party reports to be paid upfront and most of the time they are non-refundable. If a lender gives the green light to order reports, it is important to take this step as soon as possible so as to prevent any delays in case corrections need to be made.

• Inspection Completion

• While a lender will not require a copy of the inspection report, it will be required by insurance agents when the time comes to get insurance handled for the subject property.

4. Financing Contingency Date

• This date indicates that the financing for the borrower should be set in place and in some cases, a commitment letter will be given at this point. In commercial real estate, it is not typical to get a commitment letter early in the process. Most commonly, it is given by the lender prior to pre-closing conditions, so this isn't really something you should expect early on in the process.

When the due diligence and financing contingency periods have expired, the deposit goes hard, which means the earnest deposit or down payment is non-refundable. This is why it is important to work with experienced commercial real estate professionals that will protect your timeline and deposit to avoid a situation where you end up losing money instead of purchasing the property you want to acquire.

The last date is obviously the most important and exciting one. The closing date. By this point, all pre-closing conditions must have been met, changes in the sales price must have been negotiated, insurance and legal requirements met, and everything is ready to be sent to the closing table.

It is extremely important for you and your buyer to recognize that even though the lender issues a commitment letter and arranges a closing date, this is not a guarantee that the loan will close. If the lender encounters anything they don't feel comfortable with or there are drastic changes to a borrower’s financial situation, the lender can back out. From the time of commitment to the time of closing, the lender can deny the loan.

Credit is not a privilege, so you should understand that these things can happen, and they do happen. Therefore, always be prepared and control only those things you can control.

Stay on top of your dates and those involved in the transaction. Follow up and keep communication flowing.