On a commercial real estate sale, both sides pay closing costs. Who pays closing costs on commercial property comes down to what the purchase and sale agreement says: buyers generally absorb the costs of investigating the property and financing the purchase, while sellers pay the brokerage commission and the costs of delivering clear title. Buyer-side costs commonly run 2% to 5% of the purchase price, and almost every line item is negotiable.
The Purchase and Sale Agreement Decides
Commercial contracts aren’t standardized the way residential ones are. They’re custom-drafted, and any specific assignment in the agreement overrides local custom. Where the agreement is silent, local practice fills the gap, and that practice can vary by state, city, or county. State and local law also sets defaults for government-imposed fees; documentary transfer taxes, for example, typically fall on the seller by statute unless the contract shifts them.
The practical takeaway: itemize every expected cost in the agreement. Assumptions about who “usually” pays are how surprises appear on the settlement statement.
Costs the Buyer Typically Pays
Most of what a buyer spends at closing relates to due diligence and financing. Commercial lenders demand a lot more analysis than a home lender does, and the numbers reflect that.
Phase I Environmental Site Assessment
A Phase I ESA reviews the property’s history and current conditions for contamination risks like soil or groundwater pollution. It typically costs $2,000 to $4,000 for a standard site, more for large or complex properties. Beyond satisfying the lender, the assessment supports the buyer’s ability to claim the “innocent landowner” defense against federal cleanup liability, which requires “all appropriate inquiries” into the property’s environmental condition before purchase.1Office of the Law Revision Counsel. United States Code Title 42 – 9601 Definitions Fannie Mae, for its part, requires a Phase I ESA for every property securing a mortgage loan.2Fannie Mae. Environmental Due Diligence Requirements
Appraisal
Commercial appraisals analyze income streams, cap rates, comparable sales, and replacement costs. Budget roughly $4,000 for a standard building; complex properties can run over $10,000. The buyer pays whether the loan closes or not.
ALTA/NSPS Land Survey
Lenders and title insurers usually require an ALTA/NSPS survey mapping exact boundaries, easements, encroachments, and improvements. Costs start around $2,500 and can reach five figures on large or irregular parcels. Because the lender is the one demanding it, the buyer orders and pays.
Loan Origination and Lender’s Title Insurance
Origination fees generally run 0.5% to 1% of the loan amount. On a $3 million loan that’s $15,000 to $30,000; bridge, construction, and higher-risk loans can exceed 1%. The buyer also pays for a lender’s title insurance policy protecting the bank’s lien position. Combined lender and owner title policies on commercial properties commonly range from a few thousand dollars to $15,000 or more.
Property Condition Assessment
Many lenders require a PCA of the building’s structural, mechanical, electrical, and plumbing systems. Standard one- or two-story buildings run $1,250 to $2,500; large multi-story properties can hit $10,000 or more.
Attorney Fees
Both sides hire counsel, but the buyer’s bill tends to be larger because their attorney handles loan document review, due diligence coordination, and title work in addition to the purchase agreement. Standard closings run $1,500 to $3,000 per side; heavily negotiated deals can push fees above $10,000.
Costs the Seller Typically Pays
The seller’s obligations cluster around two things: paying the brokers and delivering clean title.
Brokerage Commission
The commission is almost always the seller’s largest single closing cost. Rates scale down with deal size:
- Under $1 million: roughly 4% to 8%
- $1 million to $5 million: roughly 3% to 6%
- Above $5 million: often 2% to 4%
The commission is typically split between the listing broker and the buyer’s broker and comes out of the seller’s proceeds.
Clearing Title
The seller has to deliver title free of liens and encumbrances. That means paying off any existing mortgage (plus any prepayment penalty or yield maintenance fee), resolving mechanic’s liens from unpaid contractors, and clearing delinquent tax liens. The cost depends entirely on what’s on title.
Deed Preparation and Transfer Taxes
Preparing and recording the deed is a seller-side expense. The instrument may be a grant deed, warranty deed, or special warranty deed depending on local practice and what was negotiated. Documentary transfer taxes are calculated on the sale price and paid when the deed is recorded; in most jurisdictions the seller pays by default, though the agreement can shift that.
Owner’s Title Insurance
In many markets the seller buys the owner’s title policy, which protects the buyer against pre-existing title defects. This is separate from the lender’s policy the buyer pays for. Which side actually pays the owner’s premium varies significantly by region and is one of the more commonly renegotiated items.
Costs That Get Split or Prorated
Some expenses cover a period that straddles closing, so they’re divided by the day the property changes hands.
Property Taxes
Tax bills cover a full fiscal year. The seller pays for the days they owned the property; the buyer picks up the rest. The math shows up on the settlement statement.
Rent and Security Deposits
For income-producing properties, rent already collected for the closing month is prorated: the seller credits the buyer for the days after closing. Security deposits work differently. The seller transfers all tenant deposits to the buyer at closing, because the buyer inherits the obligation to return them at lease end. The transfer appears as a credit to the buyer.
Escrow and Settlement Fees
The escrow or settlement agent charges for coordinating the closing, holding funds, and disbursing payments. Buyer and seller commonly split this fee equally, reflecting the agent’s neutral role, though the split is negotiable.
Utilities and Association Dues
Prepaid utilities, property management fees, and any owners’ association dues are prorated on the settlement statement so neither side pays for the other’s ownership period.
Tenant Estoppel Certificates
If the property has tenants, the buyer and lender will require signed estoppel certificates confirming rent, lease expiration, amendments, deposit amounts, and whether the landlord is in default. The seller obtains them because the seller is the current landlord. The buyer typically bears the cost of outside counsel reviewing or preparing the forms.
FIRPTA: A Buyer Exposure When the Seller Is Foreign
If the seller is a foreign person or entity (not a U.S. citizen, resident alien, or domestic corporation), federal law requires the buyer to withhold 15% of the total amount realized and remit it to the IRS.3Office of the Law Revision Counsel. United States Code Title 26 – 1445 Withholding of Tax on Dispositions of United States Real Property Interests The 15% applies to the gross sale price, not profit, and the buyer is personally liable for the full withholding amount if they fail to comply.4Internal Revenue Service. FIRPTA Withholding
A U.S. seller can knock the requirement out by giving the buyer a sworn nonforeign affidavit with their taxpayer identification number. A foreign seller who believes 15% overstates their actual tax can apply to the IRS for a withholding certificate authorizing a reduced amount. Either way, handle FIRPTA early, because unresolved withholding issues delay closing.
1031 Exchange Costs Fall on the Seller
A seller deferring capital gains through a Section 1031 exchange must hire a qualified intermediary to hold the sale proceeds. QI fees run $600 to $2,500 for straightforward exchanges and $3,000 to $8,500 for complex ones such as reverse exchanges or multiple replacement properties. The fee is the seller’s, paid from proceeds at closing. The purchase agreement should include cooperation language requiring the buyer to sign the paperwork needed to accommodate the exchange, at no additional cost to the buyer.
Where the Negotiation Actually Happens
The categories above are defaults, not rules. In a buyer’s market, sellers often agree to pick up items like the survey, the Phase I, or part of the lender’s title policy to keep the deal alive. In a seller’s market, buyers may offer to absorb transfer taxes or the owner’s title policy to strengthen their bid. Whichever direction the market leans, put every expected line item in the purchase agreement. An itemized agreement is what keeps the settlement statement from becoming a fight.