August 6, 2021 | Christianah
While the closing day signifies the end of a lengthy journey to finalizing a purchase of property, it also comes with additional expenses for Buyers to pay before they can truly own their new home. In most instances, there are certain prepaid costs that the Buyer would have to pay on closing day. Although these costs may seem large, it is important for Buyers to understand what they signify, so that adequate preparation can be made for them. In today’s post, we would discuss a statement of adjustment and its importance on the closing day.
What is a statement of adjustments?
A statement of adjustments is a document that details how much a buyer is to pay to the seller on closing before the property transaction is finalized. As a general rule, the seller is responsible for property taxes on the property until the closing day, while the buyer is responsible for the property taxes after closing day. Where the property taxes have already been prepaid by the seller, an amount would be added to the property purchase price so that the buyer can pay his share. A statement of adjustment therefore will contain the total amount owed to the seller, which could include property taxes, utilities, prepaid common expenses in a condominium unit, refilling a fuel or propane tank, prepaid rent on a lease, etc. – the specific adjustments will depend on the property characteristics.
A statement of adjustments contains a debit column, for amounts already paid, and a credit column, for amounts that are payable to the seller. More information can be found here.
An additional document that is relevant to buyers is the Trust Ledger Statement. This is a statement that gives an account of how money will be distributed on closing day. Usually, when the buyer has been able to determine how much is owed to the seller, this amount would then be moved to the buyer’s Trust Ledger Statement. Just like the statement of adjustments, the Trust Ledger Statement has a debit and credit column, this time, however, with the debit section showing how much must be paid on closing day, and the credit column showing the mortgage loan that has been advanced to the buyer by the mortgagee, if applicable.
It is important for buyers to have an understanding of these closing costs so that they do not come as an unwelcome surprise on closing day.
At Northview Law, we would love to discuss any questions you have about adjustments for your particular property closing. You can book a free consultation with Northview Law by following this link, or contact us at 416-639-7639. We look forward to hearing from you soon.