Image 01 Image 02 Image 03 Image 04 Image 06 Image 07 Image 07 Image 07 Image 07
Buildings By Owner | Buy, Sell & Lease Commercial Real Estate. Privately.
Home Blog Purchasing Commercial Property Post

Commercial Real Estate Blog

Making Your Offer to Purchase a Commercial Property

This is the first article of a seven part series I will be writing to help guide commercial real estate buyers through all of the steps involved in the buying of commercial property.

Putting your first offer to purchase commercial real estate in writing can be an exciting and at the same time frightening event.  There are certain legal aspects of the offer you want to make sure are included to protect you.  Here is a breakdown of what steps you should follow when making an offer on commercial real estate.

Purchase contract vs. Letter of Intent.

Depending on who you talk to in the commercial real estate investing field you will get different answers as to whether you should make your offers using a fully detailed contract or a basic letter of intent.  A letter of intent is designed to tell the owner that you are a real buyer who's ready to close at the price and terms that you've spelled out in your LOI, provided both parties can work through all of the details needed to complete the transaction. 

A purchase and sale agreement is the actual, final document that all parties sign to create a binding contract.  It will have all of the legal clauses and addendums in it along with detailed explanations of the terms of the transaction.  Many investors feel it is not worth putting in the time and effort to write out a detailed contract for a property in which they have no real feeling on whether the seller is motivated.  So using a LOI is similar to testing the water.  It lets the seller know that you are interested in the property at these terms and if they are also interested then let's talk some more and see if we can make a deal. 

If you decide to use LOI's to make your offers then it is critical you put this language inside your letter.

While this letter of intent, once signed, does not legally bind the buyer or seller, it is expected that both parties will move forward in good faith toward completing the details described herein and the signing of a Commercial Contract to Buy and Sell real estate within 10 days of the execution date of this letter.

This clause lets the seller know that your LOI is a serious offer and also creates a good faith expectation for both sides to negotiate the terms of the LOI to completion.  The real advantage of using a LOI instead of a full blown purchase and sale agreement is that it is a simple, time-efficient way to get the basic points of a deal down.  Also, a one-page document is easier to get a seller to agree with right away rather than a 15 page contract that will most likely require them to bring in their attorney and possibly pay a legal fee to see if they even want to do business with you.  The disadvantage of an LOI is you do not have a legally binding contract when you have a signed LOI from both parties.  The seller can still cancel the deal or shop it to another buyer.  So therefore it is imperative you convert your LOI to a contract as soon as possible.

Writing up the Contract

It is important that you use the proper state-approved commercial contract to buy and sell real estate when making an offer simply because it will be the form that sellers will feel most comfortable with.  While there is nothing preventing you from writing up your own contract with your own special clauses and language in it, odds are the seller is going to go over it in much more detail and bring in their attorney to review it which will slow down your entire opening negotiations.  So use the state-approved form and then write up an addendum to attach to that form to change any of the standard clauses you wish to modify or remove.  Make sure your addendum has this language in it:
In the event that any of the provisions in this addendum conflict with the attached commercial contract then in that event the provisions of this addendum shall prevail.
This language allows you to put whatever you want in the addendum and not worry about its legal effect on the rest of the contract.

Liquidated Damages

A liquidated damages clause states what the seller is entitled to in the even you, as the investor, fail to perform on the contract.  (If you should default).  It limits the seller's remedies to collect against you to the amount of the deposit you placed on the contract.  A typical liquidated damages clause will read as follows:
If the buyer fails to perform any of the covenants of this contract, all money paid to the Seller by Buyer as aforesaid shall be retained by or for the account of the Seller as consideration for the execution of this contract and as agreed liquidated damages and in full settlement of any and all claims for damages.
The advantage of a liquidated damages clause is it lets both sides of the transaction know in advance what the penalties for default will be and therefore avoids expensive litigation over the default.

Memorandum of Agreement

After your deal is accepted, you'll want to take one extra step beyond keeping a copy of the signed agreement.  You should record a Memorandum of Agreement with the Clerk of the Court in the jurisdiction where the property is located.  This lets the world know that you have this property legally under contract. It prevents the seller from selling the property again to a third party and it also prevents another investor from trying to move in on your property and cut you out of the deal.  It puts the whole world on notice that if they enter into any agreement with the seller regarding this property they are going to have to deal with your claim on the property first.

Don't miss part two of this series where I will be discussing more details of the commercial real estate sales agreement along with examples of different types of contracts you can use. Please leave your questions or comments!

Disclaimer: Nothing stated in this article should be taken as the giving of legal advice.  As always, you should check with a licensed, competent real estate attorney who specializes in your field when unsure of how to proceed.


Daniel Doran About the author: Dan has over 20 years of experience as a real estate attorney, title closer and mortgage lender. Dan is now working with BuildingsByOwner to help educate commercial real estate investors on how to sell and lease their properties privately.


Fredrick Howard Ramsay, General Contractor, Project Manager Professional, Commercial Property Developer EE, CE, PMP Says:
Nov 09, 2013

Keep Up The Good Work. Your contributions are valued at the highest level

caleb Says:
Jun 04, 2014

Most of this is word for word out of "Commercial Real Estate Investing for Dummies."

Oct 14, 2014

While picking a property executor in Washington DC true property scan for business purposes you must realize that a veritable individual just make around ten percent of the property business or even a few times lesser than this sum as well. You must be exceptionally careful while picking them as there are just two percent of the property executors who are bona fide merchants and productive representatives while breaking a business bargain. An exceptionally proficient property operator put their best exertion to make an arrangement fruitful and that is the reason they regularly take a gander at the quality and the spot of the property before calling you for a look. There are numerous reasons on which you need to settle on a choice while acquiring a property and for that there are the few components on which you are obliged to take a gander at genuinely.

john Says:
Oct 15, 2015


I can seem to find the answer to... i am raw land owner in california, do i have the right to sell my commercial land as a lease to real estate developer who is using a agent to purchase the land?

Herman Says:
Apr 13, 2016

Finding such a detailed information on this sensitive topic is difficult. Really helpful post.Thumbs up buddy..!!!

Post a comment