The Most Important Documents in your Closing - Statement of Adjustments and Trust Ledger Statement.
When you’re buying or selling a home, you will likely encounter two important documents called a Statement of Adjustments and a Trust Ledger Statement.
These two documents are the two that get the most attention from the buyer or seller, and are incredibly important because they help you make sense of the all costs and expenses that are associated with buying or selling a home.
To ensure that you manage your budgets and have a smooth closing, understanding your statement of adjustment and trust ledger are vital. They allow you to easily see the breakdown of all expenses and know decisively how much you will owe at the end of the day if you're the buyer, or how much you should expect to receive if you're the seller.
The way these documents are formatted is more like an accounting statement. We know not everyone has an accounting degree, so follow along and you'll be able to understand these statement in no-time.
What is a Statement of Adjustment?
A statement of adjustment is very similar to your personal bank statement, however, instead of listing your personal transactions, it is a record of your Real Estate or Mortgage transaction. Statements of adjustment are used by both buyers and sellers to know exactly the proceeds they receive, or how much they owe to complete the transaction.
Essentially, the statement of adjustment will list the purchase price for the home followed by any additional costs that need to be added, finally subtracting any deposits already made to determine what will be the total cost at the time of closing.
Example of a Statement of Adjustments
Like an accounting statement, when creating a statement of adjustments, costs paid to the seller go under "credit seller". Whereas costs paid by the buyer go under the "credit buyer" column.
Here's an example for a residential property sold in Ontario.
- The sale price is $500,000
- There was a deposit of $50,000 made by the buyer
- The seller pre-paid utilities at a cost of $500, however they only occupied the house for 150 days and need to be reimbursed for the half, therefore $250 will be credited.
If you’re reading this correctly, the buyer will owe the seller $450,250 on closing, after accounting for the deposit and utilities adjustment.
What is a Trust Ledger?
Similar to the statement of adjustment, both the buyer and seller’s lawyers will create a trust ledger, this time with the purpose of showing how the money will be allocated after the closing. If you are refinancing your mortgage, your lawyer will also prepare a trust ledger statement with the details of mortgage changes.
A Trust Ledger Statement is prepared for both the buyer and seller to show all remaining expenses for both parties. 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 also includes other costs such as legal fees and disbursements, land transfer tax, title insurance, etc.
For sellers, the closing costs they have are subtracted from the amount owed to them by their buyer to determine the total amount they will receive after closing (after a mortgage is paid off, for example).
Example of Trust Ledgers
In contrast to the statement of adjustment, a trust ledger will vary between a buyer and seller because they each will incur different costs after closing.
The Trust Ledger Statement shows the remaining expenses for both the buyer and seller on closing day, including legal fees and disbursements, realtor fees, land transfer tax, and so on.
We will create an example trust ledger for the buyer in the previous example assuming he has incurred the following closing fees.
- Legal fees - $4,800
- Home inspection fees - $1,200
- Land transfer tax - $12,000
The seller's trust ledger will similarly start by bringing the price paid and subtract any associated closing costs to determine the total earnings from the sale for the seller.
We will create an example of the seller’s ledger assuming the seller pays the below closing costs.
- Legal Fees - $2,200
- Real Estate Commission - $25,000
As your purchase, sale or refinance transaction moves towards closing, you’ll receive copies of the Statement of Adjustments and Trust Ledger to review for accuracy. It is important that you take the time to understand, review and ask any questions.
If this looks overwhelming to you, rest assured that the Deeded team is here to make things easier and simpler. We connect you with one of our friendly, independent real estate lawyers, who will walk you through all your documents and ensure that you understand every aspect of your transaction.