The escrow process can be daunting. Anyone that has purchased property knows the escrow process involves documents, depositories, and legalities that can be overwhelming if you are not working with a knowledgeable escrow officer to walk you through step-by-step.

At Landmark Title, we are well versed in the commercial real estate escrow process. To help you better prepare, we prepared a guide explaining what to expect when going through the commercial escrow process.

The commercial real estate escrow process is typically more complicated and takes longer than closing a residential real estate transaction. In both a commercial and residential real estate escrow, a neutral third party will hold funds in an account until all escrow agreement requirements have been met by the buyer and seller. During the initial stage of escrow, your escrow company will ensure funds are withheld from both parties until all escrow agreement requirements have been met.

Deciding on Escrow Term Agreements

Before any money is put in the escrow account, both parties must come to an agreement on the escrow terms. While each commercial real estate deal has different contingencies, some common escrow agreements include:

  • A clause stating the title agent can be appointed as the escrow agent (including waiving any fees for doing so)
  • A clause ordering the escrow agents to keep funds separate from those sent in by the buyer
  • Written instructions from both the buyer and seller giving consent to release the funds once there is an acknowledgement that terms have been met

Appointing an Escrow Agent

As noted above, there may be a clause stating that the title agent can be appointed as the escrow agent. However, it is important to note that there are no legal requirements when it comes to appointing an escrow agent. Simply put, both parties must come to an agreement on a well qualified escrow agent that they can instill trust.

Entering the Escrow Transaction

The third step of the commercial escrow process is to enter into the transaction. It is the responsibility of the escrow agent to conduct the due diligence to uncover any issues and provide all necessary documents to ensure everyone is informed of each agreement or clause.

Before the escrow process officially opens, it is important to have an understanding of all details of the property. This can include the total cost for sale, policy liability amounts, property address, and any contact details from both the buyer and seller for professional representation.

Verification of Signing Authority

Transferring these assets can be very complex, so it is important that the transaction occurs between legal entities rather than single parties. This helps reduce costs, limits liabilities, and ensures a level of trust within the transaction.

Each legal entity representing the commercial property transaction must have an individual with a signing authority. Proof of signing authority on behalf of the entity must be verified during escrow for each individual. Without verification, escrow funds cannot be released. Although this step is typically the longest within a transaction, it helps ensure that all contracts involved are in agreement with the asset transferral.

Revising and Accepting of Closing Documents

Once there is verification to release funds through each signing authority, each party must accept the final closing documents. Examples of closing documents include the final title report, deeds, environmental reports, zoning warranties, etc.

The title report is provided before closing, but this step ensures that all issues and closing revisions are reviewed and accepted by both parties. Once revisions are accepted, closing documents are filed, and the transfer deed is complete, the escrow funds are released and the process is closed.

Landmark Title recognizes that commercial transactions are often complex and require expertise to navigate. Each transaction is unique and, as a result, Landmark Title believes it requires personal attention and expert problem solving. For more information on the escrow process for commercial real estate, please contact us.