How Much Does It Cost to Sell a Commercial Property? (No Fluff Explanation)

Your sale price isn't what you walk away with.

Between the offer and the wire transfer, a stack of costs comes out of your proceeds. Most owners know about the commission. Fewer see the rest coming.

Here's the full list, and the math on a real-sized deal.

The Short Answer

The main costs of selling a commercial property:

• Broker commission
• Transfer taxes
• Legal, title, and closing costs
• Loan prepayment penalties
• Repairs and credits negotiated with the buyer
• Taxes on your gain (a separate conversation with your CPA)

Some are fixed. Some are negotiable. One of them, the prepayment penalty, surprises owners more than any other.

The Big One: Commission

Commission is usually the largest single cost. It's a percentage of the sale price, set in your listing agreement with the broker.

The rate isn't fixed by law. It depends on the property size, deal complexity, and market. Larger deals often carry lower percentages. Smaller deals usually carry higher ones.

Who pays it, and how it gets split between brokers, is its own topic. We covered it in "Who Pays Commercial Real Estate Commission?"

The point here is simple. Negotiate the rate before you sign the listing agreement, not after an offer comes in.

Transfer Taxes and Closing Costs

Many states charge a tax when real estate changes hands. Some cities and counties add their own on top.

The rates vary widely. For example, New York State charges $2 per $500 of the sale price on most commercial transfers, and New York City adds its own transfer tax on top of that. Other states charge far less, and some charge nothing at all.

Who pays is often set by local custom, and it can be negotiated in the purchase agreement.

Then there are closing costs:

• Your attorney's fees
• Title and escrow charges allocated to the seller
• Recording fees
• Prorations for property taxes and rents

None of these is huge alone. Together, they add up.

Your Loan Can Cost You Too

This is the one that catches owners off guard.

Many commercial loans charge a fee if you pay them off early. Common structures:

• Step-down penalty: a set percentage of the balance that drops each year, like 3% in year one, 2% in year two
• Yield maintenance: you pay the lender roughly the interest it loses from early payoff
• Defeasance: you replace the loan's collateral with bonds that cover the remaining payments

When interest rates have fallen since you took the loan, yield maintenance and defeasance can get expensive fast.

Before you list, pull your loan documents and ask your lender for a payoff quote. That number belongs in your pricing decision, not in a surprise at closing.

Another option: some loans can be assumed by the buyer. If yours can, it may save you the penalty and make your property more attractive.

Run the Math on Your Sale

Take the building from Article 2, valued at about $2.12 million. These figures are illustrative. Plug in your own.

• Sale price: $2,120,000
• Commission at an assumed 5%: $106,000
• Transfer tax at 0.4%: $8,480
• Legal, title, and closing (assumed): $15,000
• Prepayment penalty at 2% on a $1.2 million loan balance: $24,000
• Roof repair credit to the buyer: $20,000
• Total costs: $173,480

That's about 8.2% of the sale price gone before you pay off the loan itself, and before any taxes on your gain.

Your net from the sale, before the loan payoff: about $1,946,520.

Change one assumption and the picture moves. A 3% prepayment penalty instead of 2% adds another $12,000. Skip the roof credit by fixing it before listing, and you might keep more, or you might spend more. Run both versions.

Recap

• Your sale price minus costs is what you actually keep
• Commission is usually the largest cost, and it's negotiable before you sign
• Transfer tax rates vary by state and city, and some places charge none
• Prepayment penalties can be the biggest surprise, so get a payoff quote before listing
• In the example, costs ran about 8.2% of the price before the loan payoff and taxes

Final Word

Don't price your building on what it sells for. Price your decision on what you keep. Get the commission rate, the transfer tax, and your loan payoff number on paper before you list, then talk to your CPA about the tax side.

See what comparable properties are listed for before you set your number. Browse commercial listings at hutfin.com.