What Are the Biggest Costs Associated with a Commercial Real Estate Purchase?

Written by: Commercial Real Estate Inspectors, LLC

What You Can Expect to Pay When Buying Commercial Property in L.A.

Owning commercial property is a great way to increase the value of your business and build equity. That is why you might consider purchasing commercial real estate rather than renting it. While buying commercial property in the L.A. area has its benefits, significant costs are involved. Here are the biggest costs associated with buying a business property and an idea of what you can expect to pay.

Are you purchasing commercial property in L.A., Ventura, or Orange County and need an inspection? Contact Commercial Real Estate Inspectors, LLC. We offer free quotes on commercial property inspections in Los Angeles and across Southern California. Call (818) 957-4654 today!

What is Considered Commercial Real Estate?

Commercial property is any real estate that is used for business or professional purposes or to generate income for its owner. Examples include the following:

  • Office buildings
  • Shopping malls
  • Retail stores
  • Restaurants
  • Storefronts
  • Strip malls
  • Apartment buildings
  • Manufacturing buildings
  • Warehouses
  • Hotels and resorts
  • Medical facilities
  • Mixed-use buildings
  • Land intended for commercial development

Closing Costs Overview

Closing costs are the fees and expenses associated with purchasing commercial real estate. These costs are incurred and divided between the buyer and/or the seller during closing. Closing costs can vary based on several factors, such as the location, property type, and mortgage terms. Buyers and sellers can sometimes negotiate certain closing costs, depending on the terms of their purchase agreement. 

Types of Closing Costs

On average, a buyer can expect to pay anywhere from 3% to 5% of the total property value in closing costs. Typical closing costs include the following:

Brokerage Fees - Commission charged by brokers to facilitate and execute the purchase of a commercial property. The amount is typically a percentage of the property value.

Loan Origination Fees - Charged by the lender for processing and underwriting the loan and includes application and underwriting fees.

Appraisal Fee - The cost of having a professional appraiser assess the property's value.

Title Insurance - Insurance that protects the buyer and lender from any issues with the title, such as liens or disputes.

Environmental Report Fee - Analyzing both the land and building to determine whether there are any dangerous contaminants, this report is completed in one or two phases and is typically the buyer’s responsibility.

Courier Fee - Covers the cost of sending loan documents to the relevant parties for processing.

Survey Fee - Covers the cost of verifying the property's boundaries and dimensions.

Commercial Property Inspection Fee - The cost of a professional inspection to assess the condition of the commercial real estate.

Attorney Fees - In some cases, a real estate attorney may be involved in the closing process.

Escrow Fees - The fees charged by a third party (escrow company) for facilitating the transfer of funds and documents.

Prepaid Interest - The accrued interest on a mortgage between the closing date and due date of the first monthly payment. 

Recording Fees - Charged by the local government for recording the deed and other official documents.

Rate Lock Fee - Charged by lenders to lock in the current interest rate for an extended period. The longer you wish to lock your interest rate, the higher the fee.

Repairs - The cost of any necessary repairs. This expense can vary depending on the terms of the sale and the condition of the property and can be the buyer or seller’s responsibility.

Transfer Taxes - Taxes imposed by state or local governments on the transfer of property.

Property Taxes - Prepaid property taxes may be included in closing costs.

Homeowners Insurance - Prepaid premiums for homeowners insurance.

What Are the Biggest Costs When Buying a Commercial Property?

While all closing costs need to be considered, the ones you will need to carefully budget for include the following:

Loan Origination Fees - Anywhere from .5% - 1% of the total loan amount

Attorney Fees - Typically range from $1,500-$3,000 but can go much higher depending on the purchase.

Escrow Fees - Ranging from 1% - 2% of the purchase price

Brokerage Fees - Anywhere from 4%-8% for commercial property purchases under $1 million, decreasing above $1 million.

Contact a Commercial Real Estate Inspector in Los Angeles

When purchasing commercial property in Southern California, it is important to do your due diligence. While you are likely focused on other factors, such as the property’s location and purchase price, you must also consider the costs you will incur during the buying process. 
At Commercial Real Estate Inspectors, LLC, our Los Angeles real estate building inspection experts have over a century of collective experience. Our team of professionals will provide the information you need to make an informed decision when purchasing commercial real estate. Contact us online or call (818) 957-4654 today to learn more about our leading commercial property inspections in Los Angeles County, Ventura County, and Orange County.

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