On closing day, your statement of adjustments is created displaying any credits to the buyer or seller, and the final amount payable by the buyer on closing day. Both the buyer’s and seller’s lawyers will prepare their own statement and will then combine them, creating the one final statement of adjustments.
The statement of adjustments lists any amounts that need to be adjusted against the purchase price. It will include:
This example assumes the seller has prepaid some of their property taxes, which the buyer will need to pay back to the seller.
|Credit Purchasers||Credit Vendors|
|Purchase Pirce (excl. GST/HST)||$370,000.00|
|Prepaid Property Taxes|
|2016 taxes paid to date||$2,960.00|
|Seller's share for 73 days||$592.00|
|Credit owed to seller||$2,368.00|
|Balance Due on Closing to Seller||$362,368.00|
You don’t need to be an accountant to understand the statement of adjustments. There are two columns: credit purchaser and credit vendor. Credit purchaser typically includes amounts you’ve already paid, like your deposit. Credit vendor includes anything that needs to be paid to the seller, like pre-paid expense adjustments and the sale price.
The two columns have the same total; the amount paid and the amount received are the same. The total amount in the credit vendor column—purchase price + prepaid adjustments—is what the seller must be paid on closing day. Subtract the deposit you’ve already paid and that’s what you owe on closing day.
This example assumes the buyer bought a home in Ontario.
|Received mortgage loan from lender||$322,368.00|
|Down payment (after deposit has been paid)||$40,000.00|
|Ontario Land Transfer Tax||+$4,600.00|
|Title Insurance Fee||+$500.00|
|Legal Fees and Disbursements (incl. HST)||+$1,500.00|
|Paid to seller on closing||362,368.00|
|Paid Ontario Land Transfer Tax||$4,600.00|
|Paid Title Insurance Fee||$500.00|
|Paid Legal Fees and Disbursements (incl. HST)||$1,500.00|
Both the buyer and seller receive a trust ledger statement, to show all expenses for the buyer and all remaining expenses for the seller. In the case of the buyer, after completing the statement of adjustments, the full amount payable to the seller is then moved over to the trust ledger statement.
The trust ledger statement shows all of the money involved in the transaction on closing day, but includes other costs like legal fees. Similar to the statement of adjustments, there are two columns for debits and credits.
The debits column includes the full amount payable to the seller plus land transfer tax, title insurance, legal fees, and disbursements. Depending on the type of home you are purchasing, other fees may also be on the trust ledger statement. For example, if you’re buying a new home, the new home warranty enrolment fee and HST may also be on your statement.
The credits column includes the mortgage loan you’re getting from your lender and any extra amount you’re paying yourself.
The debits and credits columns should total the same amount, showing exactly how much must be paid out and where your money is going on closing day.