Closing Statement
A closing statement, also known as a settlement statement, is a detailed cash accounting of a real estate transaction. Prepared by an escrow officer or other designated individual, it itemizes all cash received, charges and credits applied, and cash disbursed during the sale.
What Is a Closing Statement?
A closing statement provides a comprehensive financial summary of a real estate transaction. It ensures transparency by documenting all monetary exchanges, from the buyer’s payment to the seller’s proceeds, along with associated costs like taxes, fees, and commissions.
Understanding the closing statement is essential for buyers and sellers to verify the accuracy of their financial obligations and proceeds.
How Does a Closing Statement Work?
- Preparation: Created by an escrow officer, attorney, or title company before or at the time of closing.
- Breakdown: Lists all charges, credits, and final amounts due for both buyer and seller.
- Review and Approval: Both parties review and approve the statement to finalize the transaction.
What’s Included in a Closing Statement?
- For Buyers:
- Purchase price of the property.
- Loan charges and interest.
- Taxes and insurance premiums.
- Closing costs and fees.
- For Sellers:
- Sale proceeds after deductions.
- Real estate agent commissions.
- Outstanding liens or mortgages.
- Taxes and other closing fees.
Benefits of Understanding a Closing Statement
- Transparency: Ensures all parties understand the financial details of the transaction.
- Verification: Helps confirm the accuracy of charges, credits, and disbursements.
- Legal Compliance: Meets regulatory requirements for documenting real estate transactions.
Example of a Closing Statement in Action
Before completing a home purchase, the buyer reviews their closing statement, which details the $300,000 purchase price, $10,000 in closing costs, and a $50,000 down payment. The seller's statement shows the proceeds after deducting the agent’s commission and outstanding mortgage balance.
Pros and Cons of Closing Statements
Pros:
- Provides a clear and detailed record of the transaction.
- Ensures transparency for both buyers and sellers.
- Reduces the risk of financial disputes post-sale.
Cons:
- May involve complex calculations and terminology.
- Errors or omissions can delay the closing process.
- Requires careful review to ensure accuracy.
Conclusion
A closing statement is a vital document in real estate transactions, providing a detailed financial breakdown to finalize the sale. Buyers and sellers should carefully review the statement to ensure all charges and credits are correct.
