Terminology Tuesday: Statement of Adjustments

You agreed to pay $600,000 for a home and put down a $25,000 deposit. If your mortgage is 80% ($480, 000), that leaves $95,000 of the down payment to pay the seller on closing, right?

That’s likely the lion's share of what's due, but it's only the starting point. The statement of adjustments shows what’s actually due to the seller once the deposit and any credits between the buyer and seller are accounted for.

There are a few things that can come into play here, but property taxes are the most common example of an adjustment on closing. Say the seller has already paid the full year’s taxes, and $1,200 of that covers your share for the rest of the year. You reimburse the seller for that $1,200 through the statement of adjustments, bringing the balance due to the lawyer to $96,200. If the taxes are unpaid and you’ll be paying a bill that includes the seller’s share, the adjustment can go the other way and give you a credit that reduces the balance.

The same idea can apply to prepaid condo fees or, if you’re buying a tenanted property, rent the seller has already collected for part of the month that falls after closing.

The seller’s lawyer typically prepares the statement, and the buyer’s lawyer reviews it. If you’re the buyer, your lawyer then works out how much money you need to provide after factoring in your mortgage advance and separate closing costs such as land transfer tax and legal fees.

So if the amount your lawyer asks you to bring in is different from the number you worked out when you made the offer, take a look at the adjustments. Some of that difference could be as simple as the seller having already paid your share of the property taxes for the year.