Question about an Industrial property purchase - Please help

6 Replies

I have a good friend that is looking to purchase a industrial property for their iron rebar business. There is a property that they like and it is currently in escrow but according to the listing agent it looks to be falling out. The listing agent said that there is a completed Phase 1 ESA but that now a Phase 2 is needed. He said the cost of the Phase 2 assessment is $6K and the buyer would need to pay the entire amount. 

(Here is a good time to say that my 25 years of experience is in residential sales, mortgages, and property management; I have very little commercial experience to speak of.)

My questions are: 

1. Is it normal for a buyer to pay the entire cost of the Phase 1 and/or Phase 2 report? Is this usual negotiable, or are there some customary splitting of costs between Buyer and Seller? The property is listed just under $800K.

2. How are commissions on commercial sales determined, does the Seller or Buyer or a combination of them pay commissions or is it just part of the offer negotiations?

Any insight would be great, thank you!

James

Hi James,

It is customary for the buyer to pay for the Phase 1 and/or Phase 2 if required. It is not customary for the buyer to pay any part of the commission. 

Lauren

@James Stinnett

I would be concerned if they are asking for a Phase 2.  Usually that takes place because there might be a serious environmental problem.  The reason the first transaction is falling apart is surely the failed Phase 1.  Before moving forward, I would ask for a copy of the original Phase 1 and see what the issue is.  Paying for the Phase 2 can be negotiated.  Commissions are always negotiable.

Mark 

@James Stinnett

My company can review the Phase 1 report and determine if the Phase 2 is actually needed. We do this quite often as it is almost common practice for Environmental firms to "recommend" a Phase 2. 

@Account Closed is correct buyers or loan officers/banking institutions will typically order/pay for the environmental reporting due to it being a tool for them should their be any liability or issues with the property. 

PM if you want a second opinion.

Have a prosperous day,

Jon Totaram

@James Stinnett My question is required by whom. For us, environmental reports have been from the lender. In fact, the last property we acquired onlybrequired a basic environmental assessment, but we chose to do a full Phase I so that we were more comfortable with the property from a buyers standpoint, but also from a future seller’s standpoint. GIvIng an industrIal property a clean bIll of health can be quIte valuable when it comes time to sell it. It’s not a total loss if you do have to get it.