The closing statement on a $2 million commercial property in Seattle shows a REET line item of $41,637. The buyer sees it for the first time. The question is always the same: what is this and why is it so much?
Washington’s real estate excise tax is tiered. On a $2 million sale, the first $525,000 is taxed at 1.1%, the next $1 million at 1.28%, and the remainder at 2.75%, plus Seattle’s local 0.50%. The total adds up fast on commercial transactions. It’s not a surprise if you plan for it. It is a surprise when you find out at the closing table.
K&S Canon handles commercial purchase and sale transactions in Seattle and King County, from purchase and sale agreement drafting through due diligence, title review, and closing. See our purchase and sale practice page and our commercial real estate hub page.
Real estate excise tax on Seattle commercial transactions
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SHORT ANSWER Washington’s real estate excise tax (REET) applies to virtually all transfers of commercial real property. The state rate is tiered based on selling price, with current brackets in effect through December 31, 2026. Seattle adds a 0.50% local REET on top of the state rate. REET is the seller’s obligation under RCW 82.45, and must be paid before King County will record the deed. |
Washington’s REET is calculated in tiers, similar to federal income tax brackets. Each portion of the selling price is taxed at the applicable rate for that bracket. The current state brackets are in effect through December 31, 2026, and are adjusted for inflation every four years under RCW 82.45.060.
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Selling price tier |
State REET rate |
On a $2M sale |
|
First $525,000 |
1.10% |
$5,775 |
|
$525,001 to $1,525,000 |
1.28% |
$12,800 |
|
$1,525,001 to $3,025,000 |
2.75% |
$13,062 |
|
Above $3,025,000 |
3.00% |
N/A at $2M |
|
Seattle local REET (added to state) |
0.50% |
$10,000 |
|
Total REET on $2M Seattle sale |
~$41,637 |
A few things commercial buyers and sellers in Seattle regularly miss:
|
Issue |
What it means in practice |
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REET is the seller’s legal obligation |
Under RCW 82.45.080, the state looks to the seller if REET goes unpaid. Buyers and sellers sometimes negotiate who covers closing costs, but the legal liability stays with the seller. |
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Must be paid before recording |
The REET affidavit and payment must be submitted to the King County Treasurer before the county will record the deed. Recording closes at 3:30 pm at the King County Recorder’s Office, 201 S. Jackson St., Suite 204. |
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Controlling interest transfers trigger REET |
Selling 50% or more of an entity that owns Washington real property is treated as a sale of that real property for REET purposes under RCW 82.45 / WAC 458-61A-101. A controlling interest transfer return must be filed within five days of the completed transfer. |
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Timberland and agricultural land: flat 1.28% |
Property classified as timberland or agricultural land is not subject to the graduated brackets. It is taxed at a flat 1.28% regardless of sale price. |
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REET thresholds adjusted every four years |
The current brackets ($525K / $1.525M / $3.025M) are in effect through December 31, 2026, after which DOR adjusts for inflation under RCW 82.45.060. |
The purchase and sale agreement in Washington commercial transactions
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SHORT ANSWER A commercial purchase and sale agreement (PSA) in Washington is a privately negotiated contract. There is no standard form that applies to commercial transactions the way standard forms exist in residential. Key provisions include price and earnest money, due diligence period, title and survey contingencies, representations and warranties, closing conditions, and default remedies. Every commercial PSA is different. |
Residential real estate in Washington uses standardized forms developed by the Northwest Multiple Listing Service. Commercial transactions do not. A commercial PSA is negotiated from scratch or from a starting template, and the negotiating leverage depends on the property, the market, and the parties.
In Seattle’s current commercial market, with downtown office vacancy at 35.6% as of Q4 2025, buyers have significant leverage in office transactions. Retail and industrial submarkets operate differently. The PSA should reflect the actual deal, not a generic template.
Key provisions in a Seattle commercial PSA
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Provision |
What to negotiate |
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Purchase price and earnest money |
Amount, form (cash or letter of credit), and whether earnest money is at risk or refundable during due diligence. |
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Due diligence period |
Length of the inspection period; what triggers forfeiture; right to terminate for any reason vs. specific reasons only. 30 days is common for straightforward commercial properties; complex or larger transactions often need 45-60 days. |
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Title contingency |
What title exceptions are acceptable; seller’s obligation to cure exceptions; deadline for buyer’s title objection. |
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Survey contingency |
Whether buyer requires a new ALTA survey; who pays; what happens if survey reveals encroachments or boundary issues. |
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Environmental contingency |
Phase I ESA (and whether Phase II is triggered); who pays; termination rights if contamination found. |
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Representations and warranties |
Seller’s representations about leases, environmental conditions, litigation, building systems, and permits. Survival period post-closing. |
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AS-IS vs. representations |
Many commercial sellers seek “as-is” closing language. The scope of that AS-IS clause, and what it does or does not cover, is a key negotiating point. |
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Closing conditions |
What must be true at closing for each party to be obligated to close; conditions vs. covenants. |
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Default and remedies |
Liquidated damages vs. specific performance; seller’s remedies if buyer defaults; buyer’s remedies if seller defaults. |
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Assignment |
Whether buyer can assign the contract to an entity before closing; relevant for 1031 exchange structuring. |
Due diligence on Seattle commercial property
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SHORT ANSWER Commercial due diligence in Seattle covers physical inspection, environmental review, title and survey, lease review (for income-producing properties), zoning and permit verification, and financial review. The due diligence period in the PSA determines how long the buyer has to complete these reviews and exercise any right to terminate. Every commercial property requires a different scope of due diligence. |
Due diligence in a commercial transaction is the buyer’s opportunity to verify what the seller has represented and to discover what the seller has not disclosed. The scope depends on the property type: a single-tenant NNN retail building has a different due diligence checklist than a 20-unit mixed-use property or a vacant industrial site.
Title review
The title commitment is the starting point for any commercial transaction. The commitment identifies the current owner, existing encumbrances (mortgages, liens, easements), and exceptions to coverage. For commercial transactions, ALTA (American Land Title Association) owner’s and lender’s policies provide broader coverage than CLTA policies. The buyer’s attorney reviews the commitment for unacceptable exceptions and raises title objections within the PSA deadline. The commitment is issued by the title company before closing; the policy is issued at closing. Recording takes place at the King County Recorder’s Office, 201 S. Jackson Street, Suite 204. Recording ends at 3:30 pm.
Environmental review
A Phase I Environmental Site Assessment (Phase I ESA) is the standard starting point for commercial property. A Phase I reviews historical records, current site conditions, and surrounding properties for recognized environmental conditions (RECs) without soil or groundwater sampling. If the Phase I identifies RECs, the buyer typically has a right to conduct a Phase II investigation (sampling) under the PSA’s environmental contingency.
In Seattle, environmental liability runs with the land under Washington’s Model Toxics Control Act (MTCA). A buyer who closes with knowledge of contamination can inherit cleanup liability. Negotiating a termination right tied to Phase II results is standard for sites with environmental history.
Zoning and permit verification
Before closing, the buyer should confirm the property’s zoning under SMC Title 23 and verify that the existing use is permitted. Outstanding building permits, code violations, or certificate of occupancy issues must be identified during due diligence, not discovered after closing. Seattle SDCI: (206) 684-8850.
Lease review
For income-producing commercial properties, lease review is central to due diligence. The buyer reviews each lease for term and remaining lease period, rent escalation schedule, option rights (renewal, expansion, ROFO/ROFR), co-tenancy clauses, assignment restrictions, tenant default status, and any side agreements or concessions not reflected in the base lease. A lease estoppel certificate from each tenant confirms the current status of the lease directly with the tenant, reducing the risk of seller misrepresentation.
1031 exchanges in Seattle commercial transactions
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SHORT ANSWER A Section 1031 like-kind exchange allows a seller to defer capital gains tax by reinvesting proceeds from the sale of investment or business property into replacement property of equal or greater value. Key deadlines: 45 calendar days to identify replacement property, 180 calendar days to close on replacement property. A Qualified Intermediary (QI) is required and must be engaged before the sale of the relinquished property closes. |
For commercial property owners in Seattle selling appreciated real estate, a 1031 exchange is often the most significant tax planning tool available at the point of sale. Done correctly, it defers capital gains on the full amount of proceeds reinvested in qualifying replacement property. Done incorrectly, or with missed deadlines, the full gain becomes taxable in the year of sale.
The two deadlines that cannot be missed
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Deadline |
Rule |
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45-day identification period |
Within 45 calendar days of closing on the relinquished property, the seller must identify replacement properties in writing. The identification must be signed by the taxpayer and delivered to the QI or another permissible party. Weekends and holidays are not excluded. |
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180-day exchange period |
The replacement property must be received (closing completed) within 180 calendar days of the sale of the relinquished property, or by the due date (with extensions) of the taxpayer’s return for that year, whichever is earlier. |
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No extensions |
The 45-day and 180-day deadlines are strict. They cannot be extended by agreement between the parties. Limited extension is available only for federally declared disasters under Rev. Proc. 2018-58. |
The Qualified Intermediary requirement
A QI is required for a valid deferred 1031 exchange. The QI holds the sale proceeds after closing on the relinquished property, preventing the seller from taking constructive receipt of the funds. The QI must be engaged and the exchange agreement signed before the sale of the relinquished property closes. An attorney, CPA, or real estate agent who has served the taxpayer within the prior two years is a “disqualified person” and cannot serve as QI.
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1031 and entity structure The taxpayer who sells the relinquished property must be the same taxpayer who acquires the replacement property. This is the Same Taxpayer Rule. It affects how title is held and which entity executes the PSA. If a Seattle property is held in an LLC and the owner plans a 1031 exchange, the replacement property must be acquired in the same LLC, or in a disregarded entity owned by the same taxpayer. Structuring who takes title at closing, and in what entity, is a material part of 1031 exchange planning that must be addressed in the PSA before closing. |
Deed types in Washington commercial transactions
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SHORT ANSWER Washington commercial transactions use three main deed types: statutory warranty deeds (full seller covenants covering all claims including pre-ownership), bargain and sale deeds (limited covenants covering only the grantor’s period of ownership), and quitclaim deeds (conveys whatever interest the grantor has, with no warranties). Most commercial sales use a statutory warranty deed unless the seller is an estate, a lender, or a party with limited knowledge of title history. The deed type affects the buyer’s recourse against the seller if title defects emerge post-closing. |
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Deed type |
What seller warrants |
Common use |
|
Statutory warranty deed (RCW 64.04.030) |
Full title covenants: seller warrants title against all claims, including claims arising before seller’s ownership |
Standard commercial sale between private parties |
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Bargain and sale deed (RCW 64.04.040) |
Limited title covenants: warrants against encumbrances created during grantor’s ownership only; does not warrant against pre-ownership claims |
Foreclosure sales, tax sales, distressed transactions |
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Quitclaim deed |
No warranties of any kind; conveys whatever interest grantor holds |
Transfers between related entities, clearing title, gifts, divorce settlement |
Title insurance fills the gap between deed warranties and actual title risk. An ALTA owner’s policy protects the buyer against title defects not disclosed in the title commitment. For commercial transactions, the ALTA extended coverage policy provides protection against additional risks including unrecorded easements, survey matters, and mechanic’s liens that arose before closing. Lenders typically require an ALTA lender’s policy as a condition of financing.
Purchase and sale transactions at K&S Canon
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SHORT ANSWER K&S Canon handles commercial purchase and sale transactions for buyers and sellers throughout Seattle and King County. We draft and negotiate purchase and sale agreements, conduct title and due diligence review, advise on REET planning and 1031 exchange structuring, and handle closings. Kim Sandher, JD, Washington Bar #42630. (206) 507-4009. |
We handle purchase and sale transactions for both buyers and sellers across Seattle’s commercial submarkets, including retail properties in Capitol Hill and Ballard, office buildings in South Lake Union and First Hill, industrial properties in SoDo and Georgetown, and development sites throughout King County.
For sellers, early engagement matters because the PSA establishes the entire transaction framework. For buyers, the due diligence period is the window to identify issues that affect either the decision to close or the price at which you close. Neither side benefits from calling an attorney after the PSA is signed with unfavorable terms already in place.
We also handle post-closing disputes involving purchase and sale agreements, including title defect claims, misrepresentation, and breach of representations and warranties. See our commercial real estate disputes practice page.
Frequently asked questions: commercial purchase and sale in Seattle
Washington’s REET is tiered: 1.1% on the first $525,000, 1.28% on $525,001 to $1,525,000, 2.75% on $1,525,001 to $3,025,000, and 3.0% above $3,025,000. Seattle adds a local 0.50% on top. On a $2 million Seattle commercial sale, total REET is approximately $41,637. The state brackets are in effect through December 31, 2026 under RCW 82.45.060. REET is the seller’s legal obligation under RCW 82.45.080 and must be paid before the county will record the deed.
REET is legally the seller’s obligation under RCW 82.45.080. The state can enforce payment against the seller through a debt action or by foreclosing on the property. While buyers and sellers sometimes negotiate who bears closing costs, the legal liability remains with the seller if the tax goes unpaid.
The due diligence period is negotiated in the purchase and sale agreement. It defines how long the buyer has to conduct inspections, environmental review, title review, lease review, and other investigations. A typical commercial due diligence period in Seattle is 30 days for straightforward transactions. Complex or larger properties often need 45 to 60 days. The buyer typically has the right to terminate and recover earnest money during the due diligence period.
A Section 1031 like-kind exchange allows a seller to defer capital gains tax by reinvesting proceeds into qualifying replacement property. Two deadlines apply: 45 calendar days from the sale of the relinquished property to identify replacement properties in writing, and 180 calendar days to close on the replacement property. Both deadlines are strict and cannot be extended by agreement. A Qualified Intermediary must be engaged before the relinquished property closes.
Most commercial sales in Washington use a statutory warranty deed (RCW 64.04.030), which provides full title covenants from the seller. Distressed sales, foreclosures, and tax deed sales typically use bargain and sale deeds with limited or no warranties. Quitclaim deeds are used for transfers between related entities, clearing title, or situations where no warranty is appropriate. Title insurance provides protection regardless of deed type.
Yes. Under RCW 82.45 and WAC 458-61A-101, transferring 50% or more of the ownership interest in an entity that owns Washington real property is treated as a taxable sale of that real property for REET purposes. A controlling interest transfer return must be filed within five days of the completed transfer. The taxable value is the true and fair value of the real property (including leasehold improvements) at the time of transfer.
An ALTA (American Land Title Association) owner’s policy provides broader coverage than a standard CLTA policy. For commercial transactions, ALTA extended coverage adds protection against unrecorded easements, survey matters, and other risks not visible in the public record. Lenders typically require ALTA lender’s policies as a condition of commercial financing. The title commitment is issued before closing; the policy is issued at closing after the deed is recorded at the King County Recorder’s Office, 201 S. Jackson Street, Suite 204.
This page provides general information about commercial real estate purchase and sale transactions in Washington State and Seattle. It is not legal advice and does not create an attorney-client relationship. Every transaction is different. Contact K&S Canon PLLC at (206) 507-4009 to discuss your specific situation. Kim Sandher is licensed in Washington State (Bar #42630) and admitted to the U.S. District Court for the Western District of Washington.