Buying or Selling Commercial Land? Plan a Survey Now!

Take the first two letters of your last name. Next add the last letter of your first name. Finally, enter those three letters on the Nasdaq, and purchase $700,000 worth of whichever stock they represent.

If you think that sounds like bad investment advice, then you are correct. You should never make an investment until you understand precisely what you are investing in – and commercial land is certainly no exception.

Never Buy Commercial Land Without a Survey

Here is equally bad investment advice: purchase commercial property that you haven’t received an ALTA survey for. You’ll spend hundreds of thousands of dollars without knowing the land’s boundaries, whether it is subject to any easements, whether it evinces the existence of underground utilities, or the names of the owners of adjoining properties. You truly are flying blind when you buy commercial property without a comprehensive land survey.

Some commercial land buyers assume that a good title insurance policy preempts the need for a survey. Although having title insurance is advisable in the overwhelming majority of commercial land deals, it does not provide complete protection against every potential issue.

Despite what its name suggests, an ALTA Extended Title Policy does not extend to disclose the locations of improvements and utilities. It does not disclose whether the property is currently in violation of municipal zoning ordinances. It does not disclose existing relationships between owners of adjoining land, the relationship of occupied liens to record lines, or other matters which typically aren’t recorded but which materially affect land. Only an ALTA survey reveals such crucial details, and provides the exhaustive picture a commercial property investor needs in order to fully comprehend precisely what they are getting into.

This caveat is a moot point to many commercial land buyers, however. If you are partnering with a financial lender, then it will most likely require an ALTA survey before the transaction can proceed. That’s because the information it presents is crucial to ensuring the property’s value and whether it is zoned correctly. Lenders know that ALTA surveys can prevent massive headaches. Buyers are advised to follow suit.

Never Sell Commercial Land Without a Survey, Either

Caveat emptor: let the buyer beware. It has been a tenet of common law for over four centuries, and essentially means that a seller isn’t responsible if their buyer incurs a loss that they could have avoided by inspecting or researching a chattel beforehand.

Caveat emptor is generally understood to apply to real estate transactions as well – but this does not absolve the seller of their ethical duty to represent their property as truthfully as possible.

By revealing the existence of encroachments, easements, boundary line disputes, and other factors which materially affect the property’s value, the seller helps their buyer understand which risks they are assuming and whether they should expect to resolve critical discrepancies. In other words, presenting an ALTA survey to your buyer upfront gives them a better chance of success. That increases their likelihood of buying from you again. It also inclines the buyer to form a favorable opinion of you, which counts for a lot in an industry where a good reputation is worth its weight in gold.

A seller gives themselves another great advantage by ordering their own ALTA survey. If the buyer’s survey presents information that could be used to lobby for a lower price – and that information contradicts the seller’s survey – then the seller has recourse to the buyer’s (possibly dishonest) bargaining tactics. In no uncertain terms, an ALTA survey can provide vital protection against fraud.

Buyers and Sellers Should Discuss Surveys Early On

Whichever side of the closing table you intend to sit on, it’s important to discuss surveys at the onset of the sale process. It clarifies everyone’s expectations for one another, enables the seller to make the property accessible to the buyer’s surveyor, and prevents a “he said, she said” scenario from needlessly complicating the transaction while it’s already underway.

If you’re going to take part in a commercial property transaction in Minnesota, then we welcome you to contact Compass Consultants today. In addition to ALTA surveys, we provide comprehensive boundary surveys, location surveys, construction surveys, and other surveys that present essential information for buyers, lenders and sellers alike!