Texas real estate

With the Spring and Summer slowly approaching us, we will all probably be guests of someone or will have guests staying with us. If relatives or friends are planning on visiting you anytime of the year, make them feel welcome by doing a few special things that will make them more comfortable while being away from their homes.

It will not only make them feel special, but let them know that you were thinking about them, and want them to have an enjoyable stay.

I’ve stayed thousands of nights away from home and boy does it make a difference when your hotel or host provides special touches. So think boutique hotels which lend a more personal touch to their guests when getting your space ready.

Sometimes guests just want to retire to the bedroom just to relax or be alone for a while. It makes it much more enjoyable if there is more than just a bed in the room. Pamper your house guests with some of these suggestions.

Here are a few tips and ideas to use year round for staging their rooms:

Lets start in the bedroom.

A place for them to set their luggage for unpacking and then a place to store luggage. A small bowl of potpourri, or scented diffuser (not too overpowering, and be aware of people that are sensitive of scents). A place for their belongings. Make sure drawers and closets are cleared out with plenty of hangers, even the ones with clips on them. Fresh new linens, not your leftover mismatched ones. (I love fluffy comforters with duvet covers). New comfortable pillows. (This is my biggest pet peeve. I’ve had to sleep on some of the worst pillows in some of the finest hotels. Hotels seem to skimp on the pillows unless they are feather, and I’m allergic to them, and I don’t like the way they flatten down, so I carry my own. It can really make or break your stay, and your guest may not feel comfortable telling you your pillows are like bricks or flat as pancakes). A comfortable mattress. (Another pet peeve. Again, hotels skimp on this main event in the guestroom. I can not tell you, how many horrible mattresses I’ve had to sleep on, and I’m not talking low budget hotels, I’m talking 4 & 5 star luxury hotels. If you don’t have have a reasonably good mattress, buy a memory foam topper- I like the 4″ thick one. They are very reasonably priced, and make a world of difference) Brad Pitt (Yes, the actor) says the perfect combination for a bed is a pillow top mattress with a tempur-pedic topper. And Brad can afford the best, this is what I had, before Brad came up with this combo and it it heaven! Extra pillows and blankets in the closet. Robes hanging in the closet. If it’s summer and you don’t have a ceiling fan, provide a small tabletop fan, especially if you don’t have air conditioning. Bottled water and glasses for their first night. Fresh flowers on the dresser or nightstand. A lamp to read by. A few interesting books and magazines and a deck of cards. A dish with some candy or mints. A nightlight so they don’t stumble around in the dark. A box of tissues. A small notepad with pen. A comfy throw to use if wanting to take a nap, or just to cover up without getting into the bed. A basket or plastic bag with pull ties in the closet to put dirty clothing items in. A TV and radio if possible. A clock with an alarm. A telephone. Internet access if possible. And if you have the room, an iron and ironing board in the closet comes in handy for those wrinkled clothes. Eye Patches & Ear Plugs. (this may be over the top for some, but if your room is extremely sunny, or noisy from road noise and they are used to a dark quite room, they will be extremely grateful). And for the ultimate, provide a small coffee pot and cups with condiments. And if you really want to add something extra special, especially if it’s a couple, provide a bottle of wine, glasses and opener.

In The Bathroom:

An amenities basket with shampoo, lotion, body wash, toothbrush, toothpaste, mouthwash, Q-tips, cotton balls or pads, razors and small items they may have forgotten. Basic medicine like aspirin, Tylenol, Rolaids and some band aids. Fresh plush bath towels, face towels, washcloths and spa type bath rug for shower and tub. If multiple people are using the same bathroom, provide a basket of nicer dinner napkins as an option as not to spread germs. Hair Dryer. Also, if multiple people are using one bathroom, provide disinfectant wipes and spray, as not to spread germs and wipe down counters and toilets after use, or before use. Fresh soap (still in wrapper). Pump soap next to sink. If they enjoy baths, impress with an assortment of bath salts, fizzes, oils and bubbles. Small disposable or real glasses for brushing teeth. Extra rolls of toilet paper (Extra soft 2-ply). Air Freshener spray. A Box of tissues. Eye make-up remover cloths or a set of washcloths guests can use. Night light. Magnifying Make-up mirror. Toilet plunger. (Hopefully the one item a guest will not need to use!)

I don’t recommend candles. They are great, but I’ve known people that have gone off and left them burning when going to sleep or leaving the house. Way too risky!

Copyright 2006 ? Cindy Bryant

By: Cindy Bryant

The following article is not intended to provide legal opinions or advice, but only to educate buyers about the real estate buying process. You should always consult a lawyer before entering into a legally binding contract.

In Texas, the Termination Option, or the option period as it is typically referred to, provides buyers with an unrestricted right to terminate a contract to purchase property, for a specified fee within a specified number of days after the contract is signed by all parties. In layman’s terms, the buyer has the right to say, “No thanks, I decided I don’t want to buy your house after all.” Since this is an unrestricted right, there need not be a reason for terminating or cancelling the contract. The buyer does pay for this unrestricted right to terminate. Some of the more typical amounts I see are in the $50 – $75 range, but I have seen both larger and smaller amounts. The fee can be credited to the buyer or seller at closing, generally buyers are usually credited with the fee if the sale is completed but it is a negotiable item. The length of the option period, in days, is also negotiable but typical option periods are in the 5-10 day length.

Sellers are motivated to keep the option period as short as possible, since they are basically taking their home off the market and can have the contract to purchase their house terminated for no reason at all. In this case they receive only the option fee, which is a comparatively tiny amount. Buyers do occasionally use the option period as a cure for buyer’s remorse – the typical second guessing that buyers have after making a big purchase of any kind, but this is unusual in my experience. The option period is designed to be used as a time for buyers to have home, pest, septic and other inspections done and then renegotiate the price or negotiate for repairs if necessary. In this regard, a 5 day period is attractive for a seller but during a busy season, it can be difficult to get all inspections done and have time to negotiate before the option expires.

When the option period expires, if the seller and buyer have not agreed on specific repairs or price reductions, the buyer is agreeing to buy the house “as is”, as long as any repairs originally specified in the contract are completed prior to closing. Negotiating during the option period is done via a form called the Amendment to Contract. Repairs and price reductions are written in the proper spaces on the form and then negotiation commences per the manner described in the previous article: Real Estate 301. Often, the negotiation is done verbally between the agents and then the agreed upon terms are written in on this form and signed by both parties. Often when terms are agreed upon, the seller will ask the buyer to waive any remaining option to terminate, this is also done via the Amendment to Contract. This is to prevent the buyer from coming back asking for further repairs or reductions after an agreement has been reached.

Sellers are advised to refrain from making any repairs specified by either the original contract or the Amendment until after the option period is over. Unless of course, the seller intends to complete the repairs even if the buyer were to opt out, or terminate the contract. A seller might complete all requested repairs only to have the buyer terminate the contract afterward. This is another reason sellers often ask buyers to waive the option to terminate.

The Amendment to Contract also contains places to extend the option period if necessary to complete negotions or inspections. Once the option period is over, agents and sellers (and buyers) can breathe a big sigh of relief. It is one of the last big hurdles that must be cleared on the way to closing. There are reasons that could result in the property not closing, and plenty of things that must happen to ensure that the closing will occur but most of the uphill work is usually over after the option expires. Check back later for the next article in the series – Closing the Real Estate Transaction.

By: Bill Patterson

Recent headlines suggest that home sales could be on the rise in some parts of the country, particularly in the South and Midwest. While analyst are being cautious not to sound too optimistic, the number of pending sales in December was up 6.3 percent according to the National Association of Realtors. This increase was largely credited to falling prices along with lower mortgage rates.

Austin home prices are actually on the rise, according to the most recent housing statistics from Yahoo. The median price for a home in Austin is currently $299,000, a 3.1 percent increase over January. While this may not be good news for bargain hunters, it was a positive sign that the housing market is still doing well in Central Texas.

Zillow shows that overall home values in the Austin area were down 3.6 percent at the end of last year, a sudden change after a steady climb in prices over the last three years. The stock market collapse last fall caused home values across the country to plunge in November and December of 2008. This was also the case in Austin, making the numbers in the local housing market look dire for the first time in years.

In other parts of the country the numbers at the end of last year were much worse. Boston home values were down 9.6 percent, while Santa Barbara, CA values were down 21.5 percent. While the housing crisis has been felt across the nation, the pain has certainly been deeper is some cities.

Lower new home starts and less inventory on the market both contribute to the better numbers in housing markets across the country. A recent Associated Press article noted that pending home sales were up in the South and Midwest, but fell 2-4 percent in other parts of the country. Finding the good news in the economy all depends on where one looks.

The vote this week to give a tax break to home buyers should be good news across the country. The new bill would provide a tax credit of 10 percent of the value of a residence, up to $15,000. This is an increase over the current $7,500 credit, which applied only to first time buyers. This amendment to the economic stimulus package being hammered out in Congress would apply to any home buyer of a primary residence this year. The hope is that this tax incentive will encourage banks to make loans thus stimulating the housing market with new buyers.

According to Senator Isakson, R-GA, who pushed hard for the tax credit, it will help the housing industry and the economy. A statement on Isakson’s website says, “In the mid-1970s, America faced a similar housing crisis when a period of easy credit and loose underwriting flooded the market with new construction. Interest rates rose, the economy slowed and America was left with a three-year supply of vacant homes. Congress responded by passing a $2,000 tax credit for anyone purchasing a new home for their principal residence. Isakson believes the results were clear and swift as home values stabilized, housing inventory dropped and the market recovered.” All of this can only be good news for the Austin housing market.

By: Ki Gray

Everywhere you look, there are advertisements for Real Estate, and for Real Estate Agents. We’re everywhere! The reason is pretty simple: It’s not extremely difficult to get your real estate license, a college degree is not required, and the income potential is pretty high. Unfortunately, this means that there are a lot of BAD Real Estate Agents out there. The BEST way to find a good professional – in any industry – is to ask for a referral from a trusted friend or colleague. This does not, however, mean that any person referred to you is a quality professional – everyone has a brother, sister, aunt, uncle, or cousin who is in the business, after all – but it will increase your odds.

There are a few questions that you should ask ANY Real Agent before signing a buyer’s agency or listing agreement.

1) How long have you been in the business?

Pretty much any average person could decide they want to get their license today, and have that license in their mailbox a month later. Because of this, your Real Estate Agent’s experience is VERY important. A new Agent will learn a LOT their first year, and will continue to learn more with every transaction. Don’t automatically choose against a newer Agent – they typically bring a lot of energy to the transaction, and they will have LOTS of time for you. However, if you do decide to use a newer Agent, make sure they have a great support system behind them.

2) Are you a Realtor?

Not all Real Estate Agents are Realtors. Members of the National Association of Realtors have to adhere to a strict code of ethics, or otherwise face having their membership revoked. Also, you must be a member of the National Association of Realtors to have access to the MLS (Multiple Listing Service) which is what gives Realtors access to almost every home for sale in their market area.

3) What certifications do you hold?

There is an “alphabet soup” of advanced certifications that Real Estate Agents can earn. While it doesn’t automatically mean that they are a good Agent, it does mean they are serious about their job. Keep an eye out for GRI – this is the most time consuming certification to obtain.

4) What is your specialty?

Real Estate Agents typically categorize themselves as either “commercial” or “residential” which are vastly different. Even among Residential Real Estate Agents, though, agents will specialize in Buyers, Sellers, or Renters. Some Residential Agents successfully handle Buyers & Sellers, but make sure they come with plenty of satisfied customers. Agents typically cut their teeth working with renters.

5) Can I have a list of past customers?

Take the time to call a few of an Agent’s past customers. Ask for their strengths and weaknesses (and make sure they don’t share the Agent’s last name.)

6) Who is your Broker? Can I call him/her?

Real Estate Agencies are moving towards the “mega-brokerage” mentality which means that many Agents today have never met their Broker. If an agent doesn’t have their Broker’s cell phone number, find out who they will call if they run into questions.

7) How many sales did you complete last year?

A good agent will complete at least 25 sales per calendar year. You want to make sure that the agent helping you through the largest purchase or sale of your life is a GOOD agent.

Is this your full-time job?

It always surprises me how many people are willing to let their office mate down the hall handle the purchase or sale of their home. You need someone who handles real estate transactions full-time, day in and day out, to make sure that your best interests are taken care of.

There are plenty of fantastic Real Estate Agents working today. Unfortunately, the incompetent Agents really stand out. (Did you hear about the Agent who contracted the wrong house?) Make sure that you find your Agent through a trusted source, and ask any Agent these important questions.

By: Eric Bramlett

Georgetown, Texas is one of those cities that can offer something for everyone, no matter what style of house they are looking for or what kind of budget they have. Georgetown, located in Williamson County was founded in the mid 1800s, and attracted many pioneers because of it’s ample supply of timber, clean fresh water, and the extremely fertile land. Today, some 150 years later, that same land is still drawing people into the area.

Georgetown can offer you the type of home you are looking for, whether that be a grand townhouse which has stood for decades, and is firmly routed in the backbone of the city. Or perhaps one of the many newly developed properties that are on the market. Maybe you are interested in buying a house in one of the exclusive gated subdivision communities, which are classed as being the premier country living sites both locally and nationally.

There are also a number of sites available that are not currently developed, but are available for the immediate start of construction work. Purchasing one of these sites would give you the chance to build your ideal, dream home. And you know that every detail would be perfect because you would have been the person who designed it!

No matter which type of house you are interested in, Georgetown is able to accommodate you. You will be spoilt by the beautiful country views that surround the area and will enjoy being able to explore the surrounding hills.

Georgetown has recently undergone a phase of restoration, mainly based around the Main Street program, as well as private restoration of some of the cities older homes. You will find that Georgetown is home to the highly regarded ‘best preserved Victorian and Pre WW1 downtown historic districts’. The Beaux-Arts styled Williamson County Courthouse is the centrepiece of this restoration work, and acts as both a local and national visitor attraction. Georgetown was named a national Main Street City in 1997, making it the first Texas city to be so designated.

In recent years Georgetown has experienced a tremendous increase in growth, leading to the population doubling. And it’s not hard to see why.

Georgetown offers a type of home for everyone. The area is surrounded by natural beauty, and the downtown districts are magnificent in their newly restored glory. Add to this the friendly nature of the community and you have a fantastic opportunity to enjoy some good, clean and wholesome living.

By: Wally Wilson

The Texan city of Houston is a famous Wild West location. The Houston real estate market is an unpredictable business venture and has a high rate of fluctuation. This is largely because real estate trends are governed by local factors as well as global recession. Houston real estate revolves around residential and commercial property. Residential properties have revenue generation potential and are therefore considered investment property. Real estate also covers fixtures, built up and natural resources found with the particular property. Prior to any real estate undertaking such as rentals, leases, purchase, and sale, Houston real estate appraisers provide estimates on the value of specific real estate property.

The need for real estate appraiser services is more frequent than other real estate services. This is because Houston real estate appraisals are undertaken when property is to be taxed, insured, mortgaged, or leased. Appraisals are obligatory when clients declare bankruptcy, foreclose on property, undergo divorce proceedings, or terminate a business. It is not possible to close a property deal unless it has been appraised. If the procedure is eliminated, clients have no idea regarding their property value and cannot argue their property price points.

Apart from providing Houston real estate appraisals, these professionals may even provide information on Austin real estate appraisers offer related services. This includes testifying in court if necessary and acting as consultants and providing suggestions regarding property matters. Houston real estate appraisal estimates are reached by adhering to a set pattern and detailed investigation in order to guarantee a fair approximation. At first, Houston real estate appraisers put in place a written report of a concerned property and then create further reports based upon detailed checklists and analyze it. Appraisers obtain reports from related counties and study sales trends of surrounding real estate properties. When dealing with commercial real estate, Houston real estate appraisals are based up on income proofs, working costs, property tax and building repair costs. In order to reach up on accurate estimates, they need to have access to original property registration details and measure an existing property.

By: Ken Marlborough

There is a lot going on in Austin right now. In many areas around the country the real estate market is fairly slow but over the last two months, Austin’s home market has seen steady increases. In fact that is a bit of an understatement as this past May set a record for home sales in the capitol region. This is refreshing change to what we have come to expect from the national real estate market recently. In addition the median home price was up 5% from last year, active listings are up and the time on the market has actually decreased. Austin homes are showing great worth as they are appreciating at double the national rate.

In addition to the great growth in Austin’s residential core, the city continues to develop the amenities that a growing city depends on. One of these amenities is seeing an upgrade and women in the Austin area will be glad to hear about it. St. David’s Health Care system is set to invest more than $100 million in women’s health services. A new hospital is part of the budget from the money with the site set for MoPac Boulevard south of Parmer Lane. This stands to double the capacity for women’s health issues and facilities for child delivery. It would seem that the population is also set for a bit of expansion.

In a national market that has shown signs of decline, the market in Austin seems to be going nowhere but up. This speaks highly of the drawing power that Austin possesses and of the amenities that are offered by the city itself. Austin is a great place to invest your real estate dollars, it is a capitol region and as such will likely continue to grow. With great education and an even more impressive job market with a focus on technology, health care and government employment. Austin also has a great number of international companies that round out the employment picture. This is a city that is poised for the future and ready to cope with the needs that a growing population base requires. Look for big things to happen in Austin in the near future.

By: Eric Bramlet

Are you wondering “how much is my house worth?” I have two answers for you. First, if you don’t really need to move, it is worth whatever you say it is. If you think, “I wouldn’t sell this house for less than $300,000,” then it is worth that much to you. If you “need” to sell it, though, what it is worth to you is truly irrelevant.

Market value is the only relevant value once you are ready to sell. This is the value according to all the home buyers out there. They don’t care what you spent on renovating the house, or what you originally paid. Spend $50,000 adding a pool, and they may only pay $20,000 more for the home. Real estate is worth what the market says it is worth.

To estimate the market value of your home, use “comparables.” Appraisers will usually go back as far as six months, sometimes more if there are few comps. Find at least three similar homes nearby that have sold within the last six or maybe twelve months (these are your comparables). This information is in county records (sometimes online now), or ask a real estate agent with access to the multiple listing service. Get the sales prices, terms of sale, description of the property, and other information.

Whether you are selling because of need or want, you should always have a reputable San Antonio REALTOR working for your best interest. REALTORS have the ability to access the multiple listing service (MLS) and can access comparables and evaluate these homes with you to determine a fair Market price and help ensure you get the best price. Remember, a REALTOR is not providing you with an actual appraisal; this is simply used to determine a market price. Once a contract is in effect, the buyer’s bank will likely request an appraisal to ensure the home is worth what the contract was negotiated for since the bank wants to protect its assets.

When in doubt, you may wish to consider paying for an appraisal before listing your San Antonio home for sale. This will help alleviate any concerns about whether you have the home listed at a fair market price and will give you a solid negotiating arm in the event the buyer feels the home is not worth the market price.

If a contract is negotiated, and the home appraises for less than the contract price, the parties may return to the negotiating table. If the appraisal done was for an FHA buyer, please know that this appraisal will stay with the property for a period of 6 months. If the seller entertains another FHA offer, the previous appraisal may come back to haunt you.

The important thing to remember is that whether your sales price was determined by comparables with a REALTOR, or by an independent appraiser, a sale will occur only when both the buyer and seller agree to a sales price the individual parities are willing to accept.

By: Liz Voss

The Hawaii Association of Realtors (HAR) recently published a new version of its standard form of contract for the purchase and sale of residential property in the State of Hawaii. No question, the most obvious change to the standard form is its new title – “Purchase Contract” – which replaced the form known as “Deposit Receipt Offer and Acceptance” or “DROA.” This article is meant to assist real estate brokers ans salespersons, lawyers, and Buyers and Sellers to better understand the Hawaii DROA or Hawaii Purchase Contract.

OUTLINE OF THE PURCHASE CONTRACT

The Purchase Contract is organized broadly into an introductory section followed by four major sections. The latter are designated as Section A, Section B, Section C, and Section D. Section C contains the terms of the Offer and is the “meat” of the form. Section C begins on page two of the For and its seventy-nine paragraphs continue almost to the end of what has now become a twelve-page single-spaced document.

Looking briefly at the major sections:

Section A contains “Agency Disclosures,” which each Brokerage Firm is required to make to the Parties if that Firm serves as an agent or other representative of a Party in the transaction. Section B serves as a receipt of the Buyer’s initial deposit and is usually signed by the Buyer’s agent. Section B also addresses whether the Buyer or Escrow will earn interest on the Buyer’s deposit if the deposit is placed into an interest bearing account. Section C, as previously noted, is the major part of the Purchase Contract. It constitutes the Offer to buy the Property and contains the Offer’s terms and conditions, numbered C-1 through C-79. Section C also includes a list of additional documents (called “addendum” if one document and “addenda” if more than one). Those documents may be physically attached or incorporated by reference. They are intended, in either case, to become part of the Purchase Contract. Section D is the portion of the Purchase Contract where the Seller will either accept the Buyer’s Offer of make a Counter Offer to it (thereby rejecting the Buyer’s original Offer). If the Seller wishes to make a Counter Offer, the Seller would usually do so by attaching HAR’s standard form of “Counter Offer.” Section D also confirms the Seller’s agreement to pay the agreed upon commission to the Brokerage Firm with the listing to sell the Property.

Finally, although not legally part of the Purchase Contract, the HAR standard form “Cooperating Brokerage Firm’s Separate Agreement” is usually attached to the Purchase Contract. This agreement is between the Brokerage Firm that represents the Seller and the Brokerage Firm (if different) that represents the Buyer. It provides for the sharing of the listing commission to compensate the Brokerage Firm providing services to the Buyer. Typically, but not necessarily, the commission is split equally between the two Brokerage Firms.

By: Jeremy Grad

Planning to purchase or finance Commercial or Industrial Real Estate? Shopping Center? Office Building? Restaurant/Banquet property? Parking Lot? Storefront? Gas Station? Manufacturing facility? Warehouse? Logistics Terminal? Medical Building? Nursing Home? Hotel/Motel? Pharmacy? Bank facility? Sports and Entertainment Arena? Other?

A KEY to investing in commercial real estate is performing an adequate Due Diligence Investigation to assure you know all material facts to make a wise investment decision and to calculate your expected investment yield.

The following checklists are designed to help you conduct a focused and meaningful Due Diligence Investigation.

Basic Due Diligence Concepts:

Commercial Real Estate transactions are NOT similar to large home purchases.

Caveat Emptor: Let the Buyer beware.

Consumer protection laws applicable to home purchases seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of commercial real estate.

Due Diligence: “Such a measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case.” Black’s Law Dictionary; West Publishing Company.

Contractual representations and warranties are NOT a substitute for Due Diligence.

Breach of representations and warranties = Litigation, time and money.

WHAT DILIGENCE IS DUE?

The scope, intensity and focus of any due diligence investigation of commercial or industrial real estate depends upon the objectives of the party for whom the investigation is conducted. These objectives may vary depending upon whether the investigation is conducted for the benefit of (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer; or (iv) a Lender.

If you are a Seller, understand that to close the transaction your Buyer (and its Lender) must address all issues material to its objective – some of which require information only you, as Owner, can adequately provide.

GENERAL OBJECTIVES:

(i) A “Strategic Buyer” (or long-term lessee) is acquiring the property for its own use and must verify that the property is suitable for that intended use.

(ii) A “Financial Buyer” is acquiring the property for the expected return on investment generated by the property’s income stream, and must determine the amount, velocity and durability of the revenue stream. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the must less precise capitalization rate (“cap rate”), and will need adequate financial information to do so.

(iii) A “Developer” is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although, a Developer might plan to hold the property long term as Financial Buyer after development or redevelopment. The Developer must focus on whether the planned change is character or use can be accomplished in a cost-effective manner. A developer conducting due diligence will focus on issues involving market demand, access, use and finances.

(iv) A “Lender” is seeking to establish two basic lending criteria:

1. “Ability to Repay” – The ability of the property to generate sufficient revenue to repay the loan on a timely basis; and

2. “Sufficiency of Collateral” – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary.

The amount of diligent inquiry due to be expended (i.e. “Due Diligence”) to investigate any particular commercial or industrial real estate project is the amount of inquiry required to answer each of the following questions to the extent relevant to the objectives of the party conducting the investigation:

I. THE PROPERTY:

1. Exactly what PROPERTY does Purchaser believe it is acquiring?

(a) Land?

(b) Building?

(c) Fixtures?

(d) Other Improvements?

(e) Other Rights?

(f) The entire fee title interest including all air rights and subterranean rights?

(g) All development rights?

2. What is Purchaser’s planned use of the Property?

3. Does the physical condition of the Property permit use as planned?

(a) Commercially adequate access to public streets and ways?

(b) Sufficient parking?

(c) Structural condition of improvements?

(d) Environmental contamination?

(i) Innocent Purchaser defense vs. exemption from liability

(ii) All Appropriate Inquiry

4. Is there any legal restriction to Purchaser’s use of the Property as planned?

(a) Zoning?

(b) Private land use controls?

(c) Americans with Disabilities Act?

(d) Availability of licenses?

(i) Liquor license?

(ii) Entertainment license?

(iii) Outdoor dining license?

(iv) Drive through windows permitted?

(e) Other impediments?

5. How much does Purchaser expect to pay for the property?

6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?

(a) Property owner’s assessments?

(b) Real estate tax in line with value?

(c) Special Assessment?

(d) Required user fees for necessary amenities?

(i) Drainage?

(ii) Access?

(iii) Parking?

(iv) Other?

7. Any encroachments onto the Property, or from the Property onto other lands?

8. Are there any encumbrances on the Property that will not be cleared at Closing?

(a) Easements?

(b) Covenants Running with the Land?

(c) Liens or other financial servitudes?

(d) Leases?

9. Leases?

(a) Security Deposits?

(b) Options to Extend Term?

(c) Options to Purchase?

(d) Rights of First Refusal?

(e) Rights of First Offer?

(f) Maintenance Obligations?

(g) Duty on Landlord to provide utilities?

(h) Real estate tax or CAM escrows?

(i) Delinquent rent?

(j) Pre-Paid rent?

(k) Tenant mix/use controls?

(l) Tenant exclusives?

(m) Tenant parking requirements?

(n) Automatic subordination of Lease to future mortgages?

(o) Other material Lease terms?

10. New Construction?

(a) Availability of construction permits?

(b) Utilities?

(c) NPDES (National Pollutant Discharge Elimination System) Permit?

(i) Phase 2 effective March 2003 – Permit required if earth is disturbed on one acre or more of land.

(ii) If applicable, Storm Water Pollution Prevention Plan (SWPPP) is required.

II. THE SELLER:

1. Who is the Seller?

(a) Individual?

(b) Trust?

(c) Partnership?

(d) Corporation?

(e) Limited Liability Company?

(f) Other legally existing entity?

2. If other than natural person, does Seller validly exist and is Seller in good standing?

3. Does the Seller own the Property?

4. Does Seller have authority to convey the Property?

(a) Board of Director Approvals?

(b) Shareholder or Member approval?

(c) Other consents?

(d) If foreign individual or entity, are any special requirements applicable?

(i) Qualification to do business in jurisdiction of Property?

(ii) Federal Tax Withholding?

(iii) US Patriot Act compliance?

5. Who has authority to bind Seller?

6. Are sale proceeds sufficient to pay off all liens?

III. THE PURCHASER:

1. Who is the Purchaser?

2. What is the Purchaser/Grantee’s exact legal name?

3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?

(a) Articles or Incorporation – Articles of Organization

(b) Certificate of Good Standing

4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?

(a) Board of Director Approvals?

(b) Shareholder or Member approval?

(c) If foreign individual or entity, are any special requirements applicable?

(i) Qualification to do business in jurisdiction of the Property?

(ii) US Patriot Act compliance?

(iii) Bank Secrecy Act/Anti-Money Laundering compliance?

5. Who is authorized to bind the Purchaser/Grantee?

IV. PURCHASER FINANCING:

A. BUSINESS TERMS OF THE LOAN:

What loan terms have the Purchaser, as Borrower, and its Lender agreed to?

(a) What is the amount of the loan?

(b) What is the interest rate?

(c) What are the repayment terms?

(d) What is the collateral?

(i) Commercial real estate only?

(ii) Real estate and personal property together?

(e) First lien? A junior lien?

(f) Is it a single advance loan?

(g) A multiple advance loan?

(h) A construction loan?

(i) If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?

(j) Are there reserve requirements?

(i) Interest reserves?

(ii) Repair reserves?

(iii) Real estate tax reserves?

(iv) Insurance reserves?

(v) Environmental remediation reserves?

(vi) Other reserves?

(k) Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?

(l) Is the Borrower required to pledge business accounts as additional collateral?

(m) Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “pre-payment penalties”)?

(n) Are there repayment blackout periods during which Borrower is not permitted to repay the loan?

(o) Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?

(p) Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at closing?

(q) What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay Lender’s expenses if the loan does not close?

B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN

Does Purchaser have all information necessary to comply with the Lender’s loan closing requirements?

Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.

As guidance to what a commercial real estate lender may require, the following sets forth a typical Closing Checklist for a loan secured by commercial real estate.

Commercial Real Estate Loan Closing Checklist

1. Promissory Note

2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties or a variety of other types of guarantees as may be required by Lender).

3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)

4. Mortgage [sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing]

5. Assignment of Rents and Leases

6. Security Agreement

7. Financing Statement (sometimes referred to as a “UCC-1″, or “Initial Filing”)

8. Evidence of Borrower’s Existence In Good Standing; including

(a) Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization and written Operating Agreement, if Borrower is a limited liability company; Certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)

(b) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)

9. Evidence of Borrower’s Authority to Borrow; including

(a) a Borrower’s Certificate;

(b) Certified Resolutions

(c) Incumbency Certificate

10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents of record appearing on Schedule B of the title commitment which are to remain after closing), with required commercial title insurance endorsements, often including:

(a) Affirmative Creditors Rights Endorsement (extending coverage over policy exclusion 7 and policy exclusions 3(a) and 3(d) as they relate to creditor’s rights matters)

(b) ALTA 3.1 Zoning Endorsement modified to include parking

(c) ALTA Comprehensive Endorsement 1

(d) Location Endorsement (street address)

(e) Access Endorsement (vehicular access to public streets and ways)

(f) Contiguity Endorsement (the insured land comprises a single parcel with no gaps or gores)

(g) PIN Endorsement (insuring that the identified real estate tax permanent index numbers are the only applicable PIN numbers affecting the collateral and that they relate solely to the real property comprising the collateral)

(h) Usury Endorsement (insuring that the loan does not violate any prohibitions against excessive interest charges)

(i) other title insurance endorsements applicable to protect the intended use and value of the collateral, as may be determined upon review of the Commitment for Title Insurance and Survey or arising from the existence of special issues pertaining to the transaction or the Borrower.

11. Current ALTA Survey (3 sets), [typically prepared in accordance with 2005 Minimum Standard Detail for ALTA/ACSM Land Title Surveys, certified to the lender, Buyer and the title insurer, including items 1 through 4, 6, 7(a), 7(b)(1), 8 through 11(a) and 14 from the Surveyor's "Optional Survey Responsibilities and Specifications" referred to as "Table A"].

12. Current Rent Roll

13. Certified copy of all Leases (3 sets)

14. Lessee Estoppel Certificates

15. Lessee Subordination, Non-Disturbance and Attornment Agreements [sometimes referred to simply as "SNDAs"].

16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report

17. Appraisal (must comply with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)

18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Reports)

19. Environmental Indemnity Agreement (signed by Borrower and guarantors)

20. Site Improvements Inspection Report

21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “additional insured” (sometimes listed as simply “Acord 27 and Acord 25, respectively)

22. Legal Opinion of Borrower’s Attorney

23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by Lender

24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after closing, errors or omissions in loan documentation.

It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth with some detail in the lender’s Loan Commitment – which is typically much more detailed than most loan commitments issued in residential transactions.

Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events.

If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “due diligence period” – which typically provides for a so-called “free out” – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to close may attach.

CONCLUSION

Conducting an effective due diligence investigation in a commercial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance.

Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser’s home, commercial real estate acquired for business use or for investment is impacted by numerous factors that may affect its use and value.

The existence of these factors and their affect on a Purchaser’s ability to use the Property for its intended use and on the Purchaser’s projected investment yield can only be discovered through diligent investigation and attention to detail.

The circumstances of each transaction will determine what degree of diligence is required. The level of diligence required under the circumstances is the diligence that is due.

Exercise Due Diligence.

By: R. Kymn Harp