Commercial real estate closing costs explained: the typical fees, who usually pays each one, the extra lender costs and how the split is negotiated.
Closing costs are the fees paid at the closing of a real estate sale, the point when the title passes to the buyer.
Buyers and sellers each pay some of them, as set by the contract and local custom. Budget for them as part of the commercial due diligence checklist.
This post lists the usual commercial closing costs, who tends to pay each one, the extra costs a lender adds and the Colorado fees and taxes that apply. Exact amounts come from your title company, lender and attorney, so ask each for a written quote early.
Typical Commercial Closing Costs
Commercial closing costs fall into legal, title, government, lender and broker costs.
| Cost | What it covers | Usually paid by |
|---|---|---|
| Attorney fees | Preparing and recording documents | Either or both |
| Title services | Title search and title insurance | Either; often mostly the seller |
| Recording fee | Recording the deed | Either |
| Transfer taxes or stamps | Excise tax on the sale, set by the jurisdiction | Either or both |
| Survey | Lot size and encroachments | Either |
| Brokerage commission | The brokers’ fee | The seller |
| Loan fees and points | Loan processing and prepaid interest | The buyer |
| Appraisal | Value for the lender | Usually the buyer |
What Each Closing Cost Pays For
Each line on a closing statement pays for a service or a government charge. Knowing what each one buys helps you judge a quote.
Title Search and Title Insurance
A title search checks public records for liens, easements and ownership gaps. Title insurance then protects against covered defects the search missed.
There are two policies. An owner’s policy protects the buyer, and a lender’s policy protects the bank. Title costs often fall mostly on the seller by default, but the contract sets who pays for each policy. Easements found in the search can limit how you use the site, as explained in what an easement means for a property.
Survey
A survey shows the lot lines, the size of the parcel and any encroachments. A lender or title company may ask for a current survey before it will lend or insure. On mountain parcels with steep or irregular lots, a survey can turn up access or boundary problems early.
Attorney Fees
Attorneys draft or review the contract, deed, entity documents and loan papers. On a commercial deal, each side usually hires its own counsel. Leased buildings add the work of reviewing every lease and tenant estoppel.
Recording Fees and the Documentary Fee
The county clerk and recorder charges a fee to record the deed and the deed of trust. Fees are set per document, so check your county’s current schedule.
Colorado also charges a state documentary fee on deeds. It is one cent for each $100 of consideration when the price is over $500, under C.R.S. 39-13-102. On a $1,500,000 sale, the documentary fee is $150.
Brokerage Commission
The brokerage commission pays the listing and buyer’s brokers. It is usually one of the largest closing costs and is typically paid by the seller from the proceeds. The rate is set in the listing agreement and is negotiable.
Appraisal, Environmental and Inspection Reports
Lenders often order an appraisal, an environmental report and an engineering or property condition report. A Phase I environmental site assessment looks for signs of contamination without sampling. If it flags a concern, a Phase II with soil or groundwater samples may follow, adding time and cost.
Lender Costs on Top
Commercial lenders often add an application fee or good-faith deposit and an origination fee.
Lenders may also require reserves at closing for tenant improvements, leasing commissions, repairs and interest. See commercial real estate loan costs and terms.
The origination fee is usually taken out of the loan proceeds at closing, so you net less than the loan amount. Some loans also carry extension fees, exit fees or prepayment terms. Conduit loans may require defeasance, where the borrower buys Treasury bonds to replace the lender’s expected income before paying off early. Your rate and fees move together, as covered in how commercial mortgage rates are set.
| Lender cost | When it is paid | Notes |
|---|---|---|
| Application fee or good-faith deposit | At application | Funds underwriting, often including the appraisal |
| Origination fee | At closing | Deducted from loan proceeds |
| Points | At closing | One point is 1% of the loan |
| Third-party reports | Before closing | Appraisal, environmental, engineering |
| Reserves | At closing | Tenant improvements, leasing commissions, repairs, interest |
| Exit or prepayment costs | At payoff | Varies by loan type |
Prorations and Credits at Closing
A proration splits a recurring cost or income between buyer and seller by the days each owns the property.
Property taxes are the most common proration, because they are billed yearly and most closings fall mid-year. On a leased building, the contract also usually splits the month’s rent and moves tenant security deposits to the buyer as a credit. Expense reimbursements from tenants may need a later true-up, as described in how CAM charges are reconciled.
Credits are not costs, but they change the cash needed at closing. A seller may give a credit for repairs found in inspection instead of fixing them before closing.
Who Pays: It Is Negotiable
The contract decides who pays each closing cost, so negotiate the split before you sign. In Colorado, when a nonresident sells, the title company or closing agent generally withholds the lesser of 2% of the sales price or the seller’s net proceeds for state income tax. If you pay points, one point equals 1% of the loan, paid upfront to lower the interest rate.
That withholding applies when the price is over $100,000 and the seller is a nonresident individual, estate or trust, or an out-of-state corporation without a permanent Colorado office. It must be sent to the state with form DR 1079 within 30 days of closing. It is a prepayment of tax the seller can claim as a credit on a Colorado return, not an extra fee.
In a 1031 exchange, exchange expenses enter the IRS Form 8824 gain calculation, and how each closing cost is paid can affect taxable boot. Coordinate the closing statement with your intermediary, as covered in closing a sale inside a 1031 exchange.
A typical split looks like this, but any line can move in negotiation.
| Usually the seller | Usually the buyer | Often split or negotiated |
|---|---|---|
| Brokerage commission | Loan fees, points and lender reserves | Attorney and closing fees |
| Owner’s title policy, by default | Inspections and due diligence reports | Survey |
| Payoff of the seller’s loan | Appraisal and lender reports | Local transfer taxes |
| Nonresident withholding, if it applies | Their own attorney, if separate | Recording fees and lender’s title policy |
Colorado Closing Costs and Local Transfer Taxes
Colorado has no statewide real estate transfer tax. Instead, the state charges the small documentary fee, and some towns charge their own transfer tax.
Twelve Colorado municipalities, mostly resort towns, levy a local real estate transfer tax, according to HomeLight. The rates below are from that list. Confirm the current rate, exemptions and payer with the town before you close.
| Town | Transfer tax |
|---|---|
| Aspen | 1.5% |
| Avon | 2% |
| Breckenridge | 1% |
| Crested Butte | 3% |
| Frisco | 1% |
| Gypsum | 1% |
| Minturn | 1% |
| Ophir | 4% |
| Snowmass Village | 1% |
| Telluride | 3% |
| Vail | 1% |
| Winter Park | 1% |
On a $3,000,000 building in Crested Butte, a 3% tax is $90,000, enough to change the deal math. Western Slope towns such as Grand Junction, Montrose, Delta and Durango are not on the list. More on resort-town purchases is in buying commercial property in a Colorado ski town.
The Real Property Transfer Declaration
Colorado deeds that owe the documentary fee need a Real Property Transfer Declaration, form TD-1000, when they are recorded. It goes to the county assessor, who uses sale prices when reappraising property every two years.
The form asks about personal property in the price, any 1031 trade, related parties, financing and the building’s condition. Assessors keep it confidential. Fill it in carefully, because the sale price you report feeds future valuations in your area.
A Sample Closing Budget
This example uses a made-up $1,500,000 purchase of a leased retail building in Salida, with a $1,050,000 loan. Figures marked “quote” depend on your providers, and the split shown is an assumption for illustration.
| Line | Buyer | Seller |
|---|---|---|
| State documentary fee (one cent per $100) | $150 | |
| Recording fees | County schedule | County schedule |
| Owner’s title policy | Quote | |
| Lender’s title policy | Quote | |
| One loan point (1% of $1,050,000) | $10,500 | |
| Appraisal and environmental report | Quote | |
| Attorney fees | Quote | Quote |
| Brokerage commission | Per listing agreement | |
| Property tax proration | Credit or debit | Credit or debit |
| Security deposits transferred | Credit to buyer | Debit to seller |
If the seller lived outside Colorado, the title company would also hold back up to $30,000, which is 2% of the price. Salida has no local transfer tax on the HomeLight list, but a similar building in Breckenridge would add about $15,000 at 1%.
How to Keep Closing Costs Down
Most savings come from early quotes and clear contract terms, not from cutting corners on reports.
- Get a closing cost estimate in the letter of intent stage. Ask the title company and lender for written figures before you sign.
- Name the payer for every cost. Put the split in the contract, including survey, closing fees and any transfer tax.
- Ask the title company to itemize every charge. Search, policy, closing and recording fees should each show as a line.
- Compare lender fees, not only the rate. A lower rate with more points can cost more over a short hold.
- Reuse recent reports where the lender allows. A current survey or environmental report may save time and money.
- Check for town transfer taxes early. They can be the largest line after the commission in a resort town.
Frequently Asked Questions
How much are closing costs on commercial property?
There is no single percentage, because costs depend on the price, the loan, the town and the reports needed. Commission, loan fees, title insurance and any local transfer tax are usually the largest items. Ask your title company and lender for written estimates early.
Who pays closing costs on a commercial sale, buyer or seller?
Both pay some, and the contract decides. Sellers usually pay the brokerage commission and often most title costs. Buyers usually pay lender fees, the appraisal and their own reports.
Does Colorado have a transfer tax?
Colorado has no statewide transfer tax, only a documentary fee of one cent per $100 on deeds over $500. About a dozen towns, mostly resort towns such as Aspen, Vail and Telluride, charge their own transfer tax.
Can closing costs be rolled into a commercial loan?
Some lender costs, such as the origination fee, are taken from the loan proceeds at closing. Whether other costs can be financed depends on the lender and the loan-to-value limit. Ask your lender before you plan on it.
Are commercial closing costs tax deductible?
Some are added to the property’s basis rather than deducted at once. The IRS lists legal and recording fees, survey charges and owner’s title insurance among settlement costs that can be included in basis. Loan costs follow separate rules, so ask a CPA.
Closing a Colorado Deal
RMCRE brokers structure the terms and hold the deal together through inspection and financing. The full sequence is in the Colorado buying steps.
Rocky Mountain Commercial Real Estate has brought together partner brokers across Colorado mountain towns since 2010. Our brokers can flag town transfer taxes and local fees before you sign, through RMCRE commercial brokerage services.
