If you're buying or selling a property, you're likely to come across a document called a Statement of Adjustments. A statement of adjustments is a document that outlines the financial transactions that are involved in a real estate sale. It typically includes information about the purchase price of the property, any outstanding mortgages or liens, and any other expenses or credits that need to be accounted for in the sale.The statement of adjustments is an important document that is prepared by the seller's lawyer or closing agent. It is typically provided to the buyer and their lawyer shortly before the closing date, and it is used to finalize the financial details of the sale. The statement of adjustments must be reviewed and accepted by both the buyer and the seller before the closing can take place.
To read a statement of adjustments, you will need to understand the following key components:
- Purchase price: This is the amount that the buyer has agreed to pay for the property.
- Outstanding mortgage: If the seller has a mortgage on the property, this amount will be listed on the statement of adjustments. The buyer will typically be responsible for paying off any outstanding balance on the mortgage at closing.
- Closing costs: These are the expenses associated with the sale of the property, such as legal fees, land transfer taxes, and title insurance. The buyer and seller will typically split these costs according to the terms of the purchase agreement.
- Credits: This section will list any credits that the seller is entitled to receive, such as property tax credits or utility credits. These credits will be subtracted from the purchase price to determine the net amount that the seller will receive at closing.
- Net amount: This is the final amount that the seller will receive at closing, after all adjustments have been made. This amount will be paid to the seller by the buyer or their lender, typically through a lawyer or a closing agent.
It's important to carefully review the statement of adjustments before closing on a property to ensure that all of the financial transactions are accurate and fair. If you have any questions or concerns, it's a good idea to discuss them with your lawyer or real estate agent. In some cases, the statement of adjustments may include additional items that need to be accounted for in the sale. For example, the statement may include prorated property taxes, utility bills, or association fees.
These items will be divided between the buyer and the seller based on the number of days that each party owned the property during the applicable billing period. Additionally, the statement of adjustments may include provisions for adjustments to the purchase price. For example, the purchase agreement may include a clause that allows for an adjustment to the purchase price based on the results of a home inspection. If the inspection reveals any defects or issues with the property, the buyer may be entitled to a credit or a reduction in the purchase price.
Why the Statement of Adjustments Matters
The statement of adjustments is more than just a formality—it’s the financial roadmap of your real estate deal. For buyers, it ensures you’re not overpaying or unexpectedly covering the seller’s debts. For sellers, it confirms you’re getting what’s owed after expenses and credits are settled. Think of it as the final handshake between both parties, balancing the books so everyone walks away satisfied.
In Canada, where property laws vary by province, the statement often reflects local nuances. In Ontario, for instance, land transfer taxes might appear as a buyer’s cost, while in Alberta, you’d see simpler title registration fees. Wherever you are, this document keeps the transaction transparent and fair.
A Real-Life Example: Sarah’s Home Purchase
Let’s bring this to life with Sarah, a first-time buyer in Ontario. She’s buying a $400,000 condo with a closing date of July 1. The seller, Tom, has a $150,000 mortgage and paid the full year’s property taxes ($3,600) in January. Here’s how their statement of adjustments might look:
Purchase Price: $400,000 (Sarah owes Tom).
Outstanding Mortgage: $150,000 (Sarah’s lender pays this off, reducing Tom’s net).
- Closing Costs:
- Sarah’s land transfer tax: $4,475 (her responsibility).Legal fees: $1,200 split evenly ($600 each).
- Credits:
- Property taxes: $3,600 ÷ 365 days × 182 days left = $1,795 (Tom credits Sarah for the second half of the year).
Net Amount: $400,000 - $150,000 (mortgage) - $600 (Tom’s legal fees) + $1,795 (tax credit) = $251,195 to Tom.
Sarah reviews it with her lawyer, spots a typo in the tax credit, and gets it fixed before closing. The process works—because she paid attention.
Common Items You Might See
Beyond the basics, statements of adjustments often include:
Prorated Expenses: Property taxes, condo fees, or utilities split based on ownership days. If Sarah’s condo fees are $300/month and she takes ownership mid-month, she’d owe $150, with Tom covering the rest.
Deposits: The buyer’s initial deposit (e.g., $10,000) is credited toward the purchase price.
Adjustments for Repairs: If Tom agreed to fix a leaky roof but didn’t, Sarah might get a $2,000 credit instead.
These extras depend on your deal’s terms, so read your purchase agreement closely.
Tips for Reviewing Your Statement of Adjustments
Double-Check Math: Errors happen. Verify prorations and totals.
Ask Questions: Confused about a line item? Your lawyer or agent can clarify.
Plan Funds: Buyers need cash ready for their share (e.g., closing costs). Sellers should know their net payout.
Timing Matters: Expect the statement a few days before closing—review it fast.
A thorough review avoids last-minute surprises, keeping your closing on track.
How Deeded Simplifies Your Closing
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FAQ: Statement of Adjustments Explained
What is a Statement of Adjustments?
It’s a document detailing the financial adjustments between a buyer and seller in a real estate sale, covering the purchase price, debts, costs, and credits.
Who prepares the Statement of Adjustments?
The seller’s real estate lawyer or closing agent drafts it, sharing it with the buyer’s team before closing.
When do I get the Statement of Adjustments?
Typically, a few days before the closing date—giving you time to review and approve.
What happens if I disagree with it?
Raise concerns with your lawyer immediately. Adjustments can be negotiated or corrected before closing.
Are prorated expenses common?
Yes! Property taxes, utilities, and condo fees are often split based on ownership days in the billing period.
Can the purchase price change on the statement?
Yes, if your agreement allows adjustments (e.g., for inspection issues), it’ll reflect credits or reductions.
How does it differ by province?
Closing costs like land transfer taxes (Ontario) or title fees (Alberta) vary, affecting the statement’s specifics.
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