What is a settlement statement?
A settlement statement, or completion statement, is a statement of account prepared in connection with the purchase of real estate, where the statement is the final accounting between the buyer and the seller.
When you sell your home, a settlement statement must be prepared, showing the housing expenses you have paid before the sale. The statement’s purpose is to ensure that the seller pays only for their own expenses, not the buyer’s.
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A settlement statement is thus a statement of account for the refunds of the expenses that the seller of a property has paid in advance of the date of transfer. The expenses are in the form of advance payments that the buyer of a property must repay to the seller.
This may be property tax, water, or title insurance.
The statement must be prepared no later than 30 days after the transfer
On the day of transfer, various meters are typically read to ensure that the buyer and seller are charged only for the consumption they have each had.
These readings are then used to prepare the settlement statement, which must be prepared 30 days after the property is taken over.
For fixed expenses such as property tax, reimbursement must be made on the transfer day. Operating expenses such as water are refunded on the date of disposition if it falls before the date of transfer.
What does a settlement statement include?
The content of a settlement statement may vary from one statement to another, depending on the type of property involved.
However, some items are seen in most statements. Here is a list of some of the items:
- Property taxes
- Seller’s share of title insurance
- Installment payments (interest)
- Water and sewage charges
- Garbage and chimney sweep fees
- Assumption of loans/mortgages
- Prepaid utilities such as electricity, water, and heat
- Membership dues for homeowners’ association (in-home purchases)
- Common expenses for condo association (in condo purchases)
- Oil inventory, if the home is heated with oil. If it is not agreed that the contents are part of the transaction, the oil remaining on the transfer day must be calculated.
If the buyer takes possession of the property early
Sometimes, a buyer is given access to the property before the transfer date. In that case, various consumption meters, such as electricity, water, and heat, are read when the keys are handed over.
When the buyer takes possession of the property, the buyer also assumes the risk of the property. If mortgage loans are involved, it is, therefore, a good idea for the buyer to take out home insurance for the property in connection with the real estate transaction.
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