Real Property sales and purchases have a natural flow – an interplay not only of buyer and seller, but also brokers, lenders, attorneys, inspectors, appraisers and other consultants. A fuller description of the process is at my “Complete Roadmap to Practice Startups & Buildouts [owner occupied]” (opens in separate window). The California-specific process is significantly different than for practice sales and purchases, and generally runs as follows:
- No Letter of Intent. Letters of Intent are not common with straight real property sales except for when the Buyer is targeting both the practice and the property together.
- Ownership in Trust or LLC. Buyers also should consider whether to hold ownership in the property in their revocable living trust or an LLC. This decision is very dependent on the specific property and Buyer’s particular circumstances. Holding the property in a corporation is 99.9% the wrong decision due to tax treatment of real property investment.
- Real Property Sale Agreement. The Real Property Sale Agreement tends to be the first step, using a Broker- or attorney-generated form available only through paid subscription. This agreement addresses the price, method of payment, sale contingencies, required disclosures and due diligence timelines, clean title and escrow requirements, and other subjects relevant to real property sales.
- Required Seller Disclosures. As your attorney, I prefer to get these disclosures up-front, before completing the Real Property Sale Agreement. I do so because those disclosures could derail the sale completely, if (for example) you discover that the property has a cracked foundation or asbestos contamination. Brokers and Sellers are required to make specific written disclosures about the property. These include a Property Information Sheet, Mandatory Disclosure Statement, Natural Hazards Disclosure Report, Condo Owner Association Package, and a Preliminary Title Report.
- Loan Application. Your institutional lender generally requires a signed Real Property Sale Agreement before proceeding to the property-specific loan application. Your lender will also request LOTS of documentation from Seller (and Broker if applicable). The loan commitment process can take anywhere from one to three months, depending on the parties’ cooperation levels, type of property and time of year. The lender will order an appraisal as part of its own due diligence.
- Due Diligence. The documentation requested by your lender, plus additional due diligence information, also should be delivered to you and your due diligence team. This is also when you tour the property and make appointment with your inspectors to complete inspections for the property’s structure, mechanical systems, soils, environmental, lot line and other matters.
- LLC Formation. If Buyer decided to hold ownership in the property in an LLC, now is the time to form that LLC. For details on the process, please see my LLC Formation Page.
- Leaseback. If the property will be owner occupied, your lender generally requires a written lease between the (LLC or trust) property owner and the (corporation) practice owner. The IRS also requires a written lease to prove the lease is reasonable to the practice owner.
- Closing. Once everything is signed – Real Property Sale Agreement package, Leaseback, loan documents, escrow documents, lender-required insurance policies, et al., the lender will fund to escrow, and escrow will make its required distributions. Closed!
- Post Closing Notifications. The work isn’t done once the sale is closed. Many notifications, filings and changes need to be completed – and I send you a list of those matters with hyperlinks once I know the sale has closed.
Legal consultation and documentation for real property sales and purchases are available at a flat rate or hourly. Sellers almost always choose the flat rate, Buyers are 50/50 on flat rate or hourly. Buyer or Seller, contact me for a free 30-minute consultation to get started on your real property purchase or sale!