You buy commercial real estate in seven steps: set your criteria and financing, search, make an offer with a letter of intent, sign a purchase and sale agreement, complete due diligence, secure the loan and close. Each step commits you further than the one before, so the order of the steps matters as much as the price.
| Step | What you sign or receive | Does it bind you? | What you have at risk |
|---|---|---|---|
| 1. Criteria and financing | a lender's term sheet or pre-approval | No | your time |
| 2. Search | the seller's offering memorandum | No | nothing |
| 3. Offer | a letter of intent (LOI) | Mostly no | nothing, unless the letter says so |
| 4. Contract | the purchase and sale agreement (PSA) | Yes | the deposit, once the due diligence period ends |
| 5. Due diligence | title, survey, zoning, environmental and building reports, leases | Under the PSA | the cost of the reports |
| 6. Financing | the lender's loan commitment | Yes, on its conditions | lender fees |
| 7. Closing | the deed and the loan documents | Yes | the full price |
Step 1 starts with the lender. A commercial lender sizes the loan on the building's income, so your cash at closing depends on the rent roll as much as on the price. The lending hub works out the down payment on a commercial loan under three lender tests.
Steps 3 and 4 decide when your money becomes exposed. Most terms of a letter of intent bind neither side, and our explainer on whether a letter of intent is binding shows the clauses that do. The purchase and sale agreement binds both sides. The buyer's deposit usually stays refundable until the due diligence period ends, which is when the earnest money goes hard.
Step 5 tests what the seller told you. You compare the leases with the rent roll and ask each tenant to sign an estoppel certificate. You also order the title search and survey, check the zoning and inspect the building. In the United States, a Phase I environmental site assessment can protect a buyer from liability for contamination. The inquiry "must be conducted or updated within one year before the date of acquisition" (US Environmental Protection Agency).
You buy commercial real estate through listing platforms, brokers, auctions and direct approaches to owners. Many sales never reach a public listing. The seller's broker sends the offering memorandum to a list of buyers it already knows, which is one reason buyers hire their own broker. Our page on what commercial real estate brokers do explains how they find and price buildings.
Buyers of commercial real estate fall into five groups:
- Owner-users: businesses that buy the premises they operate from.
- Private investors: individuals, families and partnerships, including syndications that pool investors' money.
- REITs: real estate investment trusts, whose shares trade on a stock exchange.
- Institutions: pension funds and insurance companies.
- Developers: buyers of land or old buildings to build or rebuild.
The largest closing cost a buyer can compute before signing is the transfer tax, which each government sets by statute as a share of the price. Title insurance, legal fees, lender fees and the due diligence reports come on top, and you price them by quote.
Take a $5,000,000 commercial building. Ontario's rates climb in four brackets from 0.5% to 2.0%, the rate above $400,000 (Ontario Ministry of Finance). On this building, Ontario's tax comes to $96,475. British Columbia charges 3% on value above $2,000,000 (Government of British Columbia). Montreal's top 2026 rate is 4%, above $3,113,000 (Ville de Montréal). New York City charges 2.625% on a non-residential transfer above $500,000 (NYC Department of Finance), and New York State adds its own tax. Florida charges 70 cents per $100 outside Miami-Dade (Florida Department of Revenue).
Source: Sphera Credit calculation on a $5,000,000 price, non-residential property, from the 2026 rates of the NYC Department of Finance, New York State Department of Taxation and Finance, Ville de Montréal, B.C. Ministry of Finance, Ontario Ministry of Finance and Florida Department of Revenue. Ontario excludes Toronto's municipal tax; Florida excludes Miami-Dade.
Two more rules change the bill. Montreal taxes the highest of the price, the amount in the deed and the assessed value times the city's comparative factor. That factor is 1.00 for 2026 (Montreal, transfer duty calculation). Florida also taxes the mortgage you record, at 35 cents per $100 of the loan, with "no cap on the amount of tax due" (Florida, mortgage tax rules).
| Cost | What it pays for | How you price it |
|---|---|---|
| Transfer tax | the government's charge on the deed | the statute's rates on the price |
| Title insurance | protection against defects in the seller's title | the insurer's premium |
| Legal fees | the contract, the title review and the closing | a lawyer's quote |
| Lender fees | the appraisal, the loan set-up and the lender's lawyer | the term sheet |
| Due diligence reports | the survey, the environmental and building reports | each consultant's quote |
Yes: in Canada, the sale of a commercial building is generally a taxable supply, new or used (CRA, GST/HST Memorandum 19.4.1). Who remits the tax depends on the buyer. When the buyer is registered for the GST/HST, the buyer accounts for the tax itself (CRA, GST/HST Memorandum 19.1). A registrant that uses the building primarily in its commercial activities reports that tax on its regular GST/HST return. A buyer that is not registered pays the tax to the seller at closing. Ask your accountant to confirm your registration and the return to file before you sign.
A business should buy its premises when it will need the space for many years and can fund the down payment without weakening the business. It should lease when it needs flexibility or when its cash earns more inside the business.
Weigh four questions before you buy:
- How long will you need this space? A purchase pays off over many years, while a sale costs a second set of closing costs.
- What else could the down payment do? Cash in a building is cash out of inventory, equipment or hiring.
- Will you use all of it? Space you do not use becomes a rental business, with tenants and vacancy.
- Who handles the roof and the boiler? An owner pays for repairs that a landlord carried before.
In the United States, an owner-occupier can buy an existing building with an SBA 504 or 7(a) loan. It qualifies when it "permanently occupies and uses no less than 51 percent of the Rentable Property" (13 CFR 120.131). The business may lease the rest to other tenants. The investing hub covers the owner-occupier's down payment under the 504 programme. Run the payments on the price you have in mind with the commercial mortgage calculator.
First-time buyers often trust the seller's forecast, rely on an old environmental report, and assume the buyer pays the transfer tax. Each mistake costs money at a different step.
The offering memorandum states the seller's case for the price. Its pro forma figures forecast the income the seller expects under full leases, so test them against the signed leases and the tenants' estoppel certificates. Our explainer on pro forma NOI in an offering memorandum shows how the forecast differs from the trailing twelve months. Then price the building on the income you verified, as in how to value commercial real estate.
An older report counts once someone brings it up to date. The EPA's rule also sets a shorter window for the interviews, the government records, the site visit and the lien search. Those parts "must be conducted or updated within 180 days before acquiring ownership of a property" (EPA, all appropriate inquiries). Order the update early enough that it falls inside both windows on the closing date.
The law of the place decides who owes the transfer tax, and the contract can move the cost between buyer and seller. In British Columbia, when you buy property registered at the Land Title Office, "you must pay property transfer tax" (British Columbia, property transfer tax rules). New York State charges its base tax to the seller, "except as provided in a contract between seller and buyer" (New York State, transfer tax rules). In Florida, "All parties to the document are liable for the tax regardless of which party agrees to pay the tax" (Florida, documentary stamp tax rules).
Read the transfer tax clause of the purchase and sale agreement before you budget the cash to close.