Commercial Real Estate Exam Rated A+

Commercial Real Estate Exam Rated A+ What are the Advantages of a LOI? - Answers - Getting deal points nailed down before you spend the time / money in drafting purchase / sale agreement. What are the Disadvantages of a LOI? - Answers - You may create a duty to negotiate. May have a no shop clause. What is a No shop agreement? - Answers - A clause in an agreement between a seller and a potential buyer that bars the seller from soliciting a purchase proposal from any other party. This is binding. What is a broker? - Answers - a person who acts as an intermediary between sellers and buyers of real estate/real property and attempts to find sellers who wish to sell and buyers who wish to buy. What are the types of brokers? - Answers - Most brokers insist on "exclusive agency." It entitles the broker to a commission if he or any other broker sells the property, but not if the property is sold through the efforts of the owner What is a Letter of Intent? - Answers - Letters of Intent are not legally binding like a contract to purchase. Instead, they spell out the general guidelines of your intent to purchase their property. Letters of Intent are standard in the purchase of commercial property where contracts are not standardized like residential real estate. They allow you to communicate the most important aspects of your offer and avoid the expense of a contact before you know if the Seller will accept your offer. What is contained in a Letter of Intent? - Answers - o Financing o Closing date o Due diligence period o Earnest money deposit o Broker fees o Period of acceptance o Signatures o Conditions Broker's commission - Answers - Earned by closing of the deal. Representations / warranties of the seller - Answers - Marketable title and to provide any information required of buyer. What is marketable title? - Answers - titles are evidence of ownership. Selling real estate (land and the property attached to it) involves transferring its title. A marketable title is one that can be transferred to a new owner without the likelihood that claims will be made on it by another party. Marketability of title is addressed in the contract for sale. Unless a contract for sale specifies that a third party has claims on the real estate, there is an implied provision that the seller has a good or marketable title, which the buyer will receive. What is the most important document of the transaction? - Answers - Purchase Agreement What is a Purchase Agreement - Answers - A purchase agreement is a type of legal document outlining the different conditions and terms that are related to the sale of goods. It creates a legally binding contract between the buyer and the seller. What about buying an interest in LLC that owns a property? - Answers - Advantages- • Seller has valuable franchise / service Ks and if buyer buys membership interest in LLC it would retain all those as Ks as well (good will). • Seller may want to retain an interest in the property. Purchaser will just buy a membership interest (not all) in the LLC. Disadvantages- • LLC may have bad stuff too. Maybe its no good will, debt, or other issues. Terms of Purchase Agreement - Answers - • Parties • Legal description • Purchase price • Down payment. • Inspection period • Closing adjustments • Taxes, insurances. • Conditions • Certificate of members of LLC o standard reps and warranties. o These are heavily negotiated. • Closing documents • Default • Title commitments Legal Description - Answers - This may also have to describe the type of land. For instance, is it a wetland? This may reduce the purchase price base on the amount of wetland. Purchase Price - Answers - Usually has downpayment which is put into an escrow account where a third party holds it until either transaction fails or is consummated. Inspection Period - Answers - Purchaser wants to be sure it can use the property for the intended use. Takes a lot. Need zoning, permits, etc. Purchaser wants lengthy time for inspections. 60 days is common, but the purchaser wants an increased good faith deposit to extend period of time for inspection. Closing Adjustments - Answers - Taxes, insurances. Cost or revenue item that comes in after the closing of the deal. So there is a period of time where these closing adjustments are made. Conditions - Answers - • Purchaser will have conditions of its obligation to close. • A common one is that it gets adequate zoning for the project. Sometimes the zoning at the time does not permit the project and the seller wants to make sure it will be changed or a variance will be granted. Certificate of members of LLC - Answers - LLC signs purchase agreement and indiv members are required to certify themselves and have personal liability for reps and warranties. Standard Representations and Warranties - Answers - ... Default - Answers - • Default under purchase agreement, purchaser has option to terminate and get return of good faith deposit back. • Seller's remedy is to get forfeiture of earnest money deposit. Escrow agent will forward money. Title Commitments - Answers - An insurance policy that insures a party against loss due to a defective title. A title policy also protects a buyer from the discovery of existing tax liens on a property, non-disclosed restrictions on the property's use, mistakes in the public recording of the exchange of ownership, and even fraud and forgery. The title insurance policy covers the purchaser for up to the amount that the property was purchased for.