July 28, 2005

Commercial Loans Where the Seller is Giving the Buyer Credits

The Sales Price of a Commercial Property May Not Be the Sales Price

Let's say a commercial mortgage lender will make commercial loans up to 80% of the sales price. What if the seller of the commercial property and the buyer agree as follows: "The sales price of this commercial property is $1,000,000 but the seller will give the buyer $100,000 credit towards the purchase price because the roof is old and in need of replacement."

Can the buyer of this commercial property obtain a new commercial loan of $800,000? After all, the purchase price is $1,000,000 and 80% of $1,000,000 is $800,000. The new commercial loan is 80% loan-to-value, right?

No-no-no! These credits for deferred maintenance on a commercial property are just smoke and mirrors. "I'll sell you my commercial property for $1 million but you only have to give me $900,000." Helloooo? What is the real purchase price? Nine hundred thousand dollars, right?

A loan of 80% LTV on a $900,000 purchase price is just $720,000. Don't get fooled by credits for deferred maintenance.

You can find the commercial mortgage rates of hundreds of commercial lenders on C-Loans.com.