What Is A Statement of Adjustments?
What is a Statement of Adjustments When Buying a Home?
When purchasing a home in Ontario, buyers often hear the term "Statement of Adjustments." This important document plays a key role in closing the transaction, ensuring that all financial matters between the buyer and seller are settled properly.
What is a Statement of Adjustments?
A Statement of Adjustments is a financial document prepared by the seller’s lawyer that outlines the final amount a buyer must pay on closing day. It accounts for costs that have already been paid by the seller and need to be reimbursed by the buyer. This ensures a fair division of expenses between both parties.
What Costs Are Included?
Purchase Price – The total agreed-upon price for the property, as stated in the Agreement of Purchase and Sale (APS).
Deposit Paid by the Buyer – Any deposit(s) made by the buyer are credited toward the final amount owed on closing.
Property Taxes – If the seller has pre-paid property taxes beyond the closing date, the buyer must reimburse them for the unused portion.
Utility Payments (if applicable) – Some homes may have pre-paid water, hydro, or gas charges that need to be adjusted.
Condominium Fees (if applicable) – In condo transactions, monthly maintenance fees are typically paid in advance. The buyer reimburses the seller for any days they will own the unit during that billing period.
Rental Items (if applicable) – If the home has rented equipment (e.g., water heater, furnace), the buyer may need to take over the contract and reimburse the seller for pre-paid amounts.
Example of a Statement of Adjustments:
Description Amount
Purchase Price $800,000
Deposit Paid by Buyer ($50,000)
Property Taxes (Prepaid by Seller) $1,200
Condo Fees (Prepaid by Seller) $300
Balance Owing on Closing $751,500
In this example, the buyer must bring $751,500 (plus legal fees and land transfer tax) to complete the purchase.
Why is the Statement of Adjustments Important?
The Statement of Adjustments plays a vital role in the home buying process because it ensures fairness between the buyer and seller by clearly outlining all financial obligations. It guarantees that the buyer only pays their fair share of costs related to the property. For example, it accounts for expenses such as prepaid property taxes, utilities, and condominium fees, ensuring that the buyer reimburses the seller for any amounts already paid beyond the closing date. Without this adjustment, buyers could end up overpaying for costs they should not be responsible for.
Moreover, the Statement of Adjustments provides a detailed breakdown of the final payment the buyer needs to make on closing day. This helps avoid any confusion or misunderstandings between the parties involved, as it clarifies what is owed after accounting for credits and debits. By having this document in hand, buyers can fully understand the total financial picture before finalizing the transaction.
The statement also plays an important role in helping buyers prepare for the closing costs that go beyond the purchase price. In addition to the deposit and purchase price, buyers should be aware of other costs, such as property taxes, utility charges, or rental equipment fees. By reviewing the Statement of Adjustments, buyers are better prepared to arrange the necessary funds for closing, including any additional amounts that may be required on top of the initial deposit and financing.
In short, the Statement of Adjustments provides transparency, helps avoid financial surprises, and ensures that both the buyer and seller fulfill their respective obligations in the transaction, making it an essential document for a smooth and fair closing.
Final Thoughts
A Statement of Adjustments is a crucial document in any home purchase, ensuring a smooth financial transition between the seller and buyer. Buyers should always review this statement carefully with their lawyer to understand exactly what they’re paying for before closing day.
Author:
Rina You
Partner
e: ryou@realtycarelaw.com