Let's suppose you decide to buy an apartment building. You check out the marketplace, spending countless hours visiting different areas. You look at building after building, meeting with brokers, owners and managers. Eventually you find the building you want. You summon up the courage, the cash and the collateral. You're ready to "go for it" - and your rights hang on a document that someone (usually the seller's broker) pulled out of a drawer! This article explains some of the pitfalls and dangers that can lurk in such forms and which may await the unwary buyer.

What are you buying
Buyers usually expect to "get it all", meaning that in addition to the building itself and the underlying land, they expect to receive personal property such as pool equipment, on-site building maintenance equipment and tools, and common area furniture. In addition, there may be subsurface oil and mineral rights. But unless your purchase agreement is specific about it, you may find that instead you end up with less than you bargained for and the expense of having to replace the items that the seller never intended to sell you and which you wrongly assumed you were buying.

What must the seller tell you
The maximum benefit that a seller can derive from the sale is the purchase price. Every word in a sale agreement represents only a possible risk, and nowhere is this greater than in the area of representations and warranties. As the broker only gets paid if and when the sale closes, it is in his or her interest also to make the agreement as short and as "standard looking" as possible. But make no mistake: getting appropriate representations and warranties is not only justifiable but essential, and no-one is looking out for you here except you. A detailed analysis of what a seller should represent to you is beyond the scope of this article, but "I'll tell you what I know", while commonly given as a general assurance at the outset of such discussions, is worse than useless as a starting point on which to base further discussion, and often leads to heated disagreement on specifics.

Inspections and investigations
Prevention is always better than cure, and thoroughly checking out the physical and management aspects of the property is a must. Be sure that your inspection right includes reviewing all of the seller's tenant files and general correspondence relating to the property, and files relating to service contracts such as maintenance for the elevator and heating and air conditioning systems, if any. Does the building comply with the Americans With Disabilities Act? Seismic requirements? Health and Safety Code? Environmental requirements? Expert consultants should be retained, and give written reports, on these essential questions.

Understanding escrow instructions
Buyers and sellers often misunderstand the true purpose and legal effect of escrow instructions. These are not magical documents which contain all of the "legal stuff" which you need to convey title to a building. They are simply a mechanism through which the purchase and sale of the property is effectuated and, as such, are very much the "junior partner" compared to the purchase and sale agreement. Never assume that "it'll all be worked out in the escrow", because it won't be.

A word about exchanges
One of the key issues in any purchase and sale is the date of closing. If you are planning to use the proceeds of another sale to buy the property through a Section 1031 tax deferred exchange, then it is very important that you leave enough leeway to allow time for any unforeseen delays in the other closing. It is far easier to negotiate such and accommodation in the early stages of discussion than after an agreement has been signed, at which point the seller is much more focused on the exact closing date.

Closing costs and how to negotiate or avoid them

1. Title Insurance and Escrow Fees. Purchasers need to be aware that in California, there are two different basic types of title insurance: CLTA and ALTA coverage. It is the custom in Southern California for the seller to pay for "basic" or CLTA coverage. While a full analysis of title insurance is beyond the scope of this article. savvy buyers will generally obtain "ALTA extended" coverage, which necessitates that a survey of the property be made but is strongly recommended nevertheless. A little known secret is that title insurance companies are willing to negotiate their rates, particularly in larger (i.e. over $5 million) transactions and that they will often "throw in" the escrow fee for free. As title insurance can be issued both directly (by the underwriting title insurer itself) or by an agent, if you decide to go for the more expensive coverage try to reduce the cost by choosing the title insurer and negotiate directly with it for the rate and for the escrow.
2. Documentary Transfer Taxes. These can now be as high as $5.60 per $1,000 of equity conveyed. Thus on a $5,000,000 building, taxes can be $28,000. But let's suppose there's $3,000,000 of debt on the building and you're getting a new loan of $4,000,000. If you simply funded the new loan at closing, the seller would pay the full $28,000. But if he sold it to you subject to the debt and you paid the loan off the next day with your new loan, he'd only have to pay $11,200, and the two of you could split the savings - $8,400 each! This may not be possible in every deal, as it requires the co-operation of the existing lender, but it can save a lot of money.

CONCLUSION
Buying an apartment building is a big investment, and should be treated like one. Your agenda as a buyer isn't the same as the seller's, the broker's or the escrow agent's. Professional advice will not only help you avoid the problems, but can save you money as well.