Typical Closing Cost for a Commercial Mortgage

Are you purchasing a commercial property? Transactions in real estate are intricate and involve numerous closing costs. There are other costs associated with commercial real estate deals besides the buyer’s down payment and the seller’s real estate commission. 

What Are Typical Closing Costs on a Commercial Mortgage?

Typical closing costs are charges that must be paid when you sell a property. They can take many forms based on the kind and state of the property you’re selling. The closing costs for a commercial property can be high and often exceed tens of thousands of dollars.  

Closing costs for the buyer typically range from 3 to 5% of the property’s price. Here is a rundown of the various closing costs you can anticipate if you’re buying a commercial property. 

Title Insurance

When you purchase title insurance, you’re paying for a third party to check the history of a property’s prior owners to ensure there are no questionable transactions. Title insurance is even more essential for commercial real estate, where properties are typically more expensive. Both the lender and the buyer need title insurance. However, the buyer is solely responsible for both costs. 

Property Inspector

Although hiring a property inspector is not required, many purchasers do so to ensure the property is in good shape. If you purchase an expensive property, you want to avoid discovering afterward that the walls are rotten or the foundation is weak.  

The difference between this and an appraisal charge is that an appraiser verifies the property’s value, whereas a building inspector verifies the property’s state.  

Miscellaneous Fees

Miscellaneous fees are typically insignificant compared to other property-related expenses, but when completing due diligence, you never know precisely what you’ll need to pay.  

A bank or mortgage provider typically imposes closing and document preparation fees, usually less than $100 each. The document preparation fee includes the cost of creating all the documents the buyer must sign. 

Payment into Escrow

Escrow is a fancy term for “money someone holds that isn’t theirs.” When you obtain a loan, the bank or mortgage company will want to ensure that you pay your property taxes and insurance. Because they don’t trust you to do so on your own, they will handle these tasks for you and add a fee to your payment. 

Appraisal Fee

A bank wants to know if the property you’re purchasing is worthwhile before lending you money. Because the collateral isn’t worth as much as their initial investment, if they lend you $500,000 on a property that is only worth $450,000 and you stop making payments, they lose money. 

Banks require you to pay an appraisal charge to hire an inspector to evaluate the property and determine whether it is worth the home’s value corresponds favorably to the asking price and your loan amount. 

Legal Fee

In some states, you cannot close on a mortgage without the assistance of an attorney. The expense of hiring a real estate attorney to organize your closing and prepare the documentation for your title transfer is covered by attorney fees. The cost of a real estate attorney varies based on local and state rates. 

Who Pays Closing Costs on a Commercial Mortgage?

Both buyers and sellers cover closing costs. But the majority of them are usually paid by the buyer. You can discuss seller concessions with a seller to help meet closing costs. Seller concessions might be highly beneficial if you believe you will have difficulty raising funds required to close. 

There are restrictions on how much a seller may contribute to closing costs. Depending on the loan type, occupancy, and down payment, sellers are only permitted to contribute up to a specific percentage of your mortgage amount. 

How to Negotiate the Best Deal on Your Commercial Mortgage

Many businesspeople are unaware that commercial mortgages can be negotiated to their demands. A businessperson on the other end might not know how to negotiate this type of mortgage, which could end up costing the businessperson a lot of money.  

The awesome thing is that it can be negotiated, but you would need to provide facts as to why the financial institutions’ risk exposure is lower than they may believe. The following tips are provided to assist you in successfully negotiating commercial mortgages. 

Establish Your Budget

Try to set aside some time for a financial consultation with your accountant or financial advisor before entering the negotiation room. You may also ask your business mortgage advising team to discuss and establish your budget. 

Setting aside money in advance will spare you the worry of trying to figure out how to pay the lender’s fee. You would have more negotiating leverage with the lender as a result of knowing exactly what you can afford. 

Get to Know the Seller

Knowing who you will be negotiating with is essential to completing the deal. Therefore, gathering as much information as possible on the seller is crucial. You must be aware of the person’s personality and the seller’s expectations and reasons for selling. You must also be aware of the history of the landlord or tenants. 

Carry Out Due diligence

Examine the property thoroughly before putting in an offer. This would give your agent the necessary tools to negotiate with the lender more successfully. While conducting your inquiry, be on the lookout for the following:  

Environmental evaluation: Ask about the property’s environmental evaluation before making an offer to confirm the site’s or the property’s condition. This is because environmental concerns could harm workers’ health and the building’s ability to be sold, which could deter banks from providing the necessary financing. 

Possible expenses: Bring in a contractor or expert to look over any modifications the building may need and provide a ballpark cost estimate as part of the due process before making an offer. You would know how to approach the negotiations by comparing the future expenditures that the property may incur with your budget or financial capabilities. 

Allowable uses: Before making an offer, find out what kinds of things or activities are permitted on the property. You can determine whether your company can function there or not through this. 

How Much Are Typical Closing Costs?

Closing costs usually account for between 3 and 6% of the loan amount. This implies that if you take out a $200,000 mortgage, closing fees should be between $6,000 and $12,000. Your down payment is not included in the closing fees, which can be negotiated. 

The seller can partially or entirely cover your closing costs. Just be mindful that the type of market you are in may significantly impact your negotiation position. 

Are Closing Costs Amortized or Depreciated? 

There are often closing costs associated with obtaining a commercial loan. As per the generally accepted accounting principles (GAAP), these expenses must be amortized over the loan’s term. The loan’s duration is specified in the loan document.  


Closing costs are payments made to your lender when you finalize your loan. The exact closing costs you’ll pay are determined by the sort of loan you have, the value of your house, and the rules of your state. Depending on the agreement, sellers may also be required to pay closing charges. 

By bargaining with your lender, you can reduce the amount of your closing costs. Make sure you check everything you need to bring to closing in addition to your finances. Ready to buy a house? Finance Lobby is the place for you. 

Finance Lobby is the premium marketplace to finance commercial real estate deals in the US. We are changing the commercial real estate industry. Sign up now to turn your dream into reality. 

January 9, 2023