Mar 17, 2023
Buying or selling a home comes with paperwork, including the important statement of adjustment. The statement of adjustment outlines all financial adjustments to the purchase or sale price and is usually prepared by your real estate lawyer. These adjustments include any credits or debits including deposits, property taxes, and condo fees. Understanding what these costs are and who pays them is essential to ensure you have a smooth closing.
A statement of adjustments typically includes the following information:
In the following example, the seller will receive credit for items included under the column “Credit Seller”. The buyer will receive credit for the items under the column “Credit Buyer”.
Starting at the top, you will see that the seller will receive a credit for the Purchase Price of $316,000. This is the purchase price agreed to by the parties in the Purchase Contract. Accordingly, the seller receives full credit for the purchase price.
Further, on the next line, the Buyer will receive a credit for the Deposit of $10,000. The deposit was paid by the Buyer upon signing the contract. The Buyer receives full credit for the Deposit they have paid.
Thirdly, in this scenario, the Buyer will pay the full 2023 property taxes. This is because the deal closes on March 1st and property taxes are typically paid to the municipality at the end of June. However, the tax year runs from January 1st to December 31st. Therefore, the Buyer receives credit for the Seller’s portion of the 2023 property taxes. The Seller’s portion of the property taxes is calculated by pro-rating the annual taxes by the number of days the Seller owned the property in 2023.
Finally, the seller has paid the March condo fees in full. Therefore, the seller will receive a credit of $505.07 for the buyer’s portion of the March condo fees. The Buyer’s portion of the condo is calculated by pro-rating the monthly condo fees by the number of days the Buyer will own the property during the month of March.
Cash to Close is the final amount owed by the Buyer to Seller on Closing. It is calculated by adding up all the credits to the seller in the “Credit Seller” column and deducting the credits to the Buyer in the “Credit Buyer” Column.
The statement of adjustment is an important document when purchasing or selling real estate as it outlines all financial costs related to the deal and who pays them. Understanding this document ahead of time can help avoid any surprises on closing day and help ensure both parties get what they agreed upon in their contract. Being familiar with this document and all its components can make for an easier transition when buying or selling your home!
The statement of adjustments shows how the amount payable between the buyer and seller is calculated, while the trust ledger statement records the money received and paid out by the law firm. The trust ledger may include mortgage loan proceeds, legal fees, closing costs, land transfer tax, and other amounts connected to the transaction. On the seller’s side, the seller’s statement and trust ledger may also show the payout of an outstanding mortgage, real estate commissions, and funds released after closing.
Review the document with your real estate lawyer before closing day and ask questions about any unfamiliar entries, various debits, prepaid expenses, utility bills, or charges covering a specific billing period. You don’t want to get to your walk-through day and see surprises. Your lawyer can compare the figures with the purchase contract, information from the real estate agent, and documents provided by the seller’s lawyer. If you notice an error close to completion, contact your lawyer immediately so it can be corrected before the total amount is transferred.
