The statement of adjustments outlines how the costs are split between the buyer and seller when a property transaction is completed. This document plays a vital role in ensuring transparency and accuracy in the financial aspects of the conveyance process. In this article, we will explain the statement of adjustments and how they work.
What is a Statement of Adjustments?
A Statement of Adjustments in closing a real estate transaction provides a detailed account of all the financial aspects that must be settled between the buyer and the seller on the completion date. This document is usually prepared by a legal professional, such as a lawyer, and it itemizes various payments and credits that apply to both parties. These adjustments are necessary to fairly distribute costs that have been prepaid or are owed beyond the date of sale, such as property taxes, utilities, or condo fees. Doing so ensures that the seller receives the correct amount of money and that the buyer knows their exact financial obligation on the day the property changes hands.
For buyers, the Statement of Adjustments clarifies the final amount they are required to pay at the closing. This will include the purchase price minus their initial deposit, plus or minus any prorated amounts for prepaid expenses by the seller. On the other hand, for sellers, this statement lays out any amounts that will be credited back to them, reflecting the buyer’s responsibility for costs extending beyond the closing date. By providing a detailed breakdown of these financial obligations, the Statement of Adjustments helps prevent disputes post-closing by setting clear, agreed-upon terms. Both parties need to review this document thoroughly with their legal advisors to ensure a mutual understanding of the adjustments and that the completion of the sale proceeds without any financial ambiguity.
Key Components of a Statement of Adjustments
The key components of a Statement of Adjustments can be categorized into several essential items that capture the financial transactions between the buyer and seller. The statement of adjustments may include, but is not limited to, the following items:
- Purchase Price: The total amount agreed upon for the property sale.
- Deposit: The initial payment made by the buyer when the offer to purchase was accepted. This amount is credited to the buyer in the statement.
- Prorated Property Taxes and Utilities: These are costs that the seller has prepaid for a period that extends beyond the closing date. The buyer may reimburse the seller for the portion of the time when the buyer will own the property.
- Rent and Security Deposit Adjustments: If the property is tenanted, any rent collected by the seller that applies to the period after the buyer takes possession is credited to the buyer, along with any tenant security deposits that will be transferred.
- HOA Fees or Condo Fees: Similar to taxes and utilities, any homeowners association fees or condo fees the seller has prepaid will be prorated and adjusted so that the buyer pays for the period they have the property.
The Importance of the Statement of Adjustments
The Statement of Adjustments is a vital document in real estate transactions. It lists the prorated amounts to be settled, ensures fairness for both parties and provides a clear statement of the balance due at closing. The real estate lawyers review it to validate calculations and ensure compliance with local regulations. The statement is an essential record that can be referenced if questions arise about the financial transactions. It safeguards the interests of both buyers and sellers and is a fundamental component of the conveyancing process.
How it Affects the Buyer and Seller
For the buyer, the statement of adjustments clarifies the final amount they must pay at closing. This goes beyond the purchase price to include other financial obligations to acquire the property.
For the seller, it details the amounts to be credited back to them, which may include the buyer’s share of prepaid costs, such as the aforementioned property taxes or homeowner’s association fees, if applicable.
Summary
The statement of adjustments is a fundamental document that must be reviewed carefully by both parties involved in a real estate transaction. Buyers and sellers should work closely with their respective legal counsel to understand and verify each line item on the statement. This ensures that the closing proceeds smoothly, with a clear understanding of all financial responsibilities being transferred along with property ownership.
Insight Law Professional Corporation is a real estate law firm located in Toronto. If you need more information on real estate transactions, contact us today and learn how a real estate lawyer can help you.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
