Taking the Leap: Tapping Alliant National Expertise to Support Your Diversification into Commercial Transactions
We’ve learned from the refinance boom and bust years that being a one trick pony in the title insurance profession is not the pathway to longevity. Diversifying your transactions with purchase, refinance, builder, REO and mobile home transactions is a good way to hedge your bets in the cyclical reality of the real estate market.
Commercial transactions can also be a great way to solidify your competitive position in the local market. However, many agents are a bit leery of taking the plunge due to the more complex nature of these deals.
Donna More, VP and Senior Underwriting Counsel for Alliant National Title Insurance Company, says that while she can understand an agent’s initial trepidation, there is a logical pathway for agents to move into the commercial end of the business, and Alliant National underwriting counsel can be a great resource as you are learning the ropes.
“I think an experienced underwriting attorney is key in these transactions,” More says. “We know right off the top what is going to come up. We can get the agent prepared, alert them on what they are going to need, and tell them what questions to ask – even before they get the search report – so they can avoid some surprises later on in the transaction.”
She notes that agents are hesitant to get into commercial because they don’t want to appear ignorant when questions and issues come up. But most of the tough issues will be resolved by underwriting counsel.
“We are going to be the ones who come up with methods of resolution, based on our professional experience,” she explains. “That is one of the big advantages we offer our agents. With our experience and knowledge, we are often able to predict what is going to happen, or what is going to be needed. We can already be thinking ahead to the best way to resolve potential issues.”
But let’s not put the cart before the horse.
There are some key steps you can take before venturing into commercial transactions. It’s also helpful to understand how the players’ roles are different and explore some of the elements that are unique to commercial transactions.
Learning about commercial transactions
The best way to learn the nuances of commercial deals, according to More, is first, to take on small deals in order to learn by doing; second, to work closely with underwriting counsel to get questions answered; and finally, to seek out educational opportunities.
“I recommend that agents who want to get into commercial and want to feel competent and prepared should take classes,” she advises. “There are always good takeaways from the commercial real estate seminars. Also, ask local attorneys what they recommend would be helpful to gain a higher degree of sophistication in commercial real estate.”
More says it shouldn’t be too hard to find educational opportunities, since bar associations and land title associations offer commercial real estate classes. Even if the class is geared towards lawyers, it can still give an agent insight into commercial deals, affording them a greater level of comfort, she adds.
Securing commercial transaction title orders
More acknowledges that the most complicated commercial transactions are usually handled by attorney title agents but notes that there are plenty of non-attorney title agents who have been successful at developing a clientele with their existing real estate agent and broker customers who handle both residential and commercial transactions.
She also advises mining existing customer relationships for potential opportunities.
“Someone who bought a $3 million home and closed with you is probably a fairly successful businessperson and may be involved in buying and selling commercial properties,” she says. “Nurture those relationships.”
She also suggests getting immersed in the local business community and commercial industry organizations, especially the real estate associations like Commercial Real Estate Women (CREW) or NAIOP, the Commercial Real Estate Development Association (fka the National Association for Industrial and Office Parks).
“Being involved in the local commercial industry organizations is a very good source of knowledge and business,” More says. “Go to the local meetings and take advantage of the educational opportunities to build your confidence.”
How commercial title work differs from residential
Commercial transactions can be complicated, with more lawyers involved and often more parties to the transaction. In addition, the principals are often not individuals, but legal entities.
“The title agent needs to be very familiar with the types of legal entities in their state and what the requirements are for proof of good standing and proof of authority,” More explains.
She says an agent is also more likely to have to deal with ancillary issues, such as easements for access. Generally speaking, in a residential sale, the home is on a platted lot and there are no issues with access. But with commercial property, it could involve a landlocked parcel and you have to be concerned about access or the adequacy of access.
“The other important difference is how you deal with the lenders,” she says. “The lenders are going to expect more. In the more sophisticated transactions, there are going to be more requirements and different documentation needed. Even though you as the title agent would not be preparing the documents, you will have to familiarize yourself with all the documents in the transaction as well as get them signed as part of the package and recorded.”
More notes that construction loans are also more complicated for commercial properties and lenders will have a lot more requirements. The agent could also run into construction lien issues.
“Florida has a construction lien law that is very detailed and very complicated. That’s another reason why it’s so important to go to your underwriting attorney to get the guidance you need,” she advises.
Same basics, different pacing
The basics of the title and closing work in a commercial transaction is not very different from residential transaction.
“The agent needs to go through the commitment, see what the requirements are, and get familiar with the exceptions,” she explains. “It is especially important for a title agent to be able to distinguish what the parties are responsible for vs. what they are responsible for. And of course, they should come to underwriting as soon as they see something that makes them say, ‘I don’t know what this is.’”
However, More clarifies, the title agent must account for everything even if it is the sellers’ or buyers’ responsibility to actually perform the task or provide the documentation.
Sometimes commercial deals can be turned around quickly, but usually they take longer because the inspections and due diligence are more complicated, often involving permitting, approvals, DOT issues and access.
“In my seminars for Florida agents, I have always suggested checklists for any transaction, but it is most imperative in commercial deals,” More says. “Go through the contract. Check the timelines. Also, as the title agent, you need to share your title work with all parties – seller, buyer and lender. Sellers and their lawyers will have a much bigger role in a commercial transaction. The seller will have to come up with all kinds of documentation. On the buyer side, the lender will need to see the organization of the entity and will want to look at their books and balance sheets.”
And of course, the title agent will be involved in the curative work, even if it is only to give the seller guidance as to what will be required.
“In addition to keeping up with the timing, probably the most crucial part of what they do is keeping track of what needs to be fixed and how it needs to be fixed,” More notes. “That’s where we come in. They need underwriting to determine how to cure a problem or explore the alternatives available to fix an issue. We rate those alternatives – this is the best course of action or this is the option we don’t want to do.”
Commercial real estate transactions do require some expertise, but it is knowledge that can be acquired over time through educational opportunities and on-the-job experience with smaller transactions. But the most important resource you have at your disposal will always be the experienced and knowledgeable underwriting attorneys at Alliant National. We are always here to help you learn how to navigate this fascinating and challenging aspect of the title insurance business in order to take your agency to the next level.