What is a Statement of Adjustment?
What You Should Know
- A statement of adjustments shows how much is to be paid to the seller on closing, along with a breakdown of all costs. It’s used to keep track of transactions and amounts.
- The statement of adjustments will include costs that the seller has prepaid and that the buyer will reimburse, such as prepaid utilities or property tax for the year.
- The buyer's trust ledger will show how much they have paid to the seller, along with buyer closing costs, such as land transfer tax, legal fees, and home appraisal fees.
- A seller's trust ledger shows how much the seller will receive, after subtracting legal fees and real estate commissions.
- A refinance trust ledger statement is used to show changes to your mortgage amount when you are refinancing your mortgage.
A statement of adjustments is a lot like your own personal bank statement; however, instead of for your monthly purchases, it includes your various debits and credits from a housing transaction. The use of a Statement of Adjustments is to show the final amount the buyer owes to the seller on the closing date. To calculate this, prepaid expenses that the buyer will have to reimburse the seller for such as utilities and property tax are added to the purchase price and subtracted from the deposit. This gives both the buyer and seller the same amount that will be due to the seller when the property closes. When both the buyer’s and seller’s Statement of Adjustments is combined, it creates a final overall picture of what is happening in the transaction.
What is a Trust Ledger Statement?
A Trust Ledger Statement is used to show how money is being distributed when the sale does close. For both buyers and sellers, the amount due to the seller at close is carried over to the Trust Ledger. For buyers, closing costs are added to the amount owed to the seller, to equal the total cost owed at close. For sellers, the amount owed to them by the buyer at close is then subtracted from the closing costs the seller has.
Example of a Statement of Accounts & Trust Ledger Statement
A single family residential property is sold in British Columbia. The sale price is $750,000. The deposit made by the buyer is $30,000. The seller has prepaid the utilities for the full month, however only used it for 18 days before transferring the property to the seller. Along with this, the seller paid the full property tax amount for the year, however only owned the property for 138 days. In order to rectify this, the buyer needs to pay the seller for the utilities for the rest of the month, along with property tax for the rest of the year. Subtracting the deposit already paid by the buyer leaves a new amount of $724,653 owed to the seller at the closing date.
Buyer's Statement of Adjustments
| Purchase Price | $750,000 |
| Deposit | - $30,000 |
| Prepaid Utility Fees | |
|---|---|
| Fees Paid This Month | + $246 |
| Seller's Share (18 Days) | - $148 |
| Prepaid Property Tax | |
| Taxes Paid to Date | + $7,324 |
| Seller's Share (138 Days) | - $2,769 |
| Due to Seller on Closing | $724,653 |
The seller's Statement of Adjustments shows the same amount to be paid on the closing date as the buyer has.
Seller's Statement of Adjustments
| Purchase Price | $750,000 |
| Deposit | - $30,000 |
| Prepaid Utility Fees | |
|---|---|
| Fees Paid This Month | + $246 |
| Seller's Share (18 Days) | - $148 |
| Prepaid Property Tax | |
| Taxes Paid to Date | + $7,324 |
| Seller's Share (138 Days) | - $2,769 |
| Paid to Seller on Closing | $724,653 |
The buyer’s down payment and mortgage amount to pay both the seller and closing costs are at the top of the Trust Ledger. The amount that is owed to the seller on the closing day from the Buyer's Statement of Adjustments, is carried over to the buyer’s Trust Ledger. Next, the buyer's Trust Ledger adds up closing costs, including land transfer taxes and legal fees to name a few. When combined with the amount paid to the seller on close, it represents the total amount left to be paid by the buyer.
| Buyer's Trust Ledger | |
|---|---|
| Down Payment | $140,387 |
| Mortgage from Lender | + $600,000 |
| Total Funds | $740,378 |
| All Costs | |
| Paid to Seller on Closing | $724,653 |
| Closing Costs | |
| Land Transfer Tax, BC | + $13,000 |
| Lawyer & Legal Fees | + $1,400 |
| Home Inspection Fee | + $500 |
| Property Appraisal Fee | + $350 |
| Property Survey Fee | + $475 |
| Total Closing Costs | $15,725 |
| Total Cost | $740,378 |
On the top of the seller's Trust Ledger, it carries over the remaining amount due from the buyer at close from the Statement of Adjustments. In order to find the total amount the seller will get, the seller's closing costs are subtracted, including legal fees and real estate commissions.
| Seller's Trust Ledger | |
|---|---|
| Received From Buyer | $724,653 |
| Closing Costs | |
| Legal Fees | $920 |
| Real Estate Commission | $30,000 |
| Total Closing Costs | $30,920 |
| Paid to Seller After Close | $693,733 |
Refinancing
For those refinancing their mortgages, you will only get a trust ledger statement. In it will be the changes to your mortgage amount. If you are taking out a larger mortgage, which is common in places such as Ontario where home prices have soared, the new amount is subtracted from your old mortgage balance. The remainder is then subtracted by any bills or debts you wish to pay down. After subtracting the difference and the costs of the bills or debts, the remaining balance will be yours to keep.
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