Buying or selling a home in the Lower Mainland is an exciting time, but it can be stressful with all the paperwork.
One of the most important documents you’ll come across during a real estate transaction in BC is the Statement of Adjustments. It’s the balance sheet of your property transaction.
It may sound overwhelming, but it isn’t. This guide breaks down everything you need to know about the Statement of Adjustments, what it is, why it’s necessary, and how it impacts both buyers and sellers. Let’s dive in.
What is The Statement of Adjustments in BC?
In short, the Statement of Adjustments is an important financial document that details the total amount of money a buyer needs to pay to finalize the purchase of a property. For the seller, it shows the net amount of money they’ll receive after all costs are settled. This document basically makes sure that both the buyer and seller only pay for the period they own the property.
For example, if a seller in Vancouver has prepaid their property taxes for the entire year, the buyer will need to reimburse them for the portion of the year they will own the home. The Statement of Adjustments calculates this exact amount. We’ll get into more detailed examples later.
Types of Potential Adjustments
There are several costs that can be adjusted between a buyer and a seller during the final closing period. Most of these costs are prorated based on the adjustment date, so each party pays their fair share.
Here are some of the common adjustments you’ll see on a Statement of Adjustments in BC.
Property Taxes
One of the most common adjustments is property taxes. They are involved in nearly every property, and it’s rare to time a property purchase with property tax periods.
Municipalities like Richmond and Burnaby require property taxes to be paid annually, so if the seller has prepaid taxes for the year, the buyer will owe them a credit for the days they will own the home.
Similarly, if taxes are due but not yet paid the seller will give the buyer a credit to cover their portion of the tax bill.
Strata Fees
If you’re buying or selling a condo, townhouses, or other strata property, the monthly strata fees will need to be adjusted. If the seller paid the fee for the month of the closing, the buyer will reimburse them for the days they occupy the property that month.
Utilities
Costs related to services like water, sewer, and garbage collection are often billed on a quarterly or annual basis by the municipality. These will be prorated on the statement, too. However, hydro and natural gas are typically not included, as buyers and sellers set up their own accounts.
Rental Income
If the property is a rental and the tenant has already paid the month’s rent to the seller, the buyer will receive a credit for the portion of the month they will be the new landlord.
Security Deposits
For tenanted properties, the seller will credit the buyer for any security or pet damage deposits they are holding, as the buyer will be responsible for returning these to the tenant at the end of the tenancy.
Fuel
If the home uses heating oil, the remaining fuel in the tank is measured, and the buyer will pay the seller for its value.
Recommended Resource: Subject To Sale in BC: How It Works & Should You Avoid?
Determining the Adjustment Date
Technically, the adjustment date is determined as the day when the financial responsibility for the property officially transfers from the seller to the buyer. In BC, the adjustment date is usually the same as the possession date, which is the day the buyer gets the keys and can move in.
This date is very important because it’s the date for calculating all prorated expenses.
The seller is responsible for all costs up to (but not including) the adjustment date, and the buyer is responsible for all costs from the adjustment date onward. A key factor in determining final costs for all.
Example
For example, if the possession date is June 15th, the seller pays for everything until June 14th, and the buyer’s financial responsibility starts on June 15th. This date is agreed upon in the Contract of Purchase and Sale and is used by the lawyer or notary to prepare the final Statement of Adjustments.
Recommended Resource: Contract of Purchase and Sale For New Home Buyers & Sellers
The Buyer’s Statement of Adjustments
For a buyer, the Statement of Adjustments is a critical document prepared by your lawyer or notary that details all the finances involved in your property purchase. It provides a clear and final calculation of the total amount of money you need to provide to finalize the transaction.
The statement begins with the agreed-upon purchase price of the property. From there as it goes, it adds all closing costs and subtracts any credits you are entitled to.
The final number at the bottom of the document is the “balance due on completion”—this is the exact amount you must have ready for your legal representative before the possession date.
Typical Adjustments
Here’s a breakdown of what a buyer’s statement typically includes:
Debits (Costs the Buyer Must Pay):
- Purchase Price: The agreed-upon sale price of the home.
- Property Transfer Tax (PTT): A provincial tax based on the property’s fair market value.
- Prorated Property Taxes: A credit to the seller if they have prepaid property taxes for the year.
- Prorated Strata Fees: A credit to the seller for any prepaid monthly strata fees.
- Prorated Utilities: A credit to the seller for any prepaid municipal utilities.
- Legal Fees and Disbursements: The cost of the lawyer or notary’s services.
- Title Insurance: Optional but often recommended insurance.
Credits (Amounts That Reduce What the Buyer Owes):
- Deposit: The initial deposit paid when the offer was accepted.
- Mortgage Funds: The total amount of the mortgage loan being provided by the lender.
- Prorated Property Taxes: A credit from the seller if property taxes are due but not yet paid.
- Prorated Rental Income: A credit from the seller if they collected rent for the period the buyer will own the home.
- Security/Pet Deposits: A credit for any deposits held for tenants.
This final figure is a detailed calculation that typically includes:
- The remaining portion of your down payment (the full down payment minus the initial deposit you paid when your offer was accepted).
- All legal fees for the conveyancing service.
- The provincial Property Transfer Tax (PTT).
- Any reimbursements or credits owed to the seller, such as their portion of prepaid property taxes or strata fees.
Example: Buying a Townhouse in Richmond
To better understand how the statement of adjustments works, let’s consider an example of new homebuyers, Alex and Taylor, who are purchasing a townhouse in Richmond for $850,000. Here’s a breakdown of the adjustments that might be on the Statement of Adjustments:
Purchase Price Breakdown
Alex and Taylor agreed on a purchase price of $850,000 for the townhouse. They initially paid a deposit of $20,000 when their offer was accepted. This deposit will be credited towards their total down payment at closing.
Down Payment Contribution
Their lender required them to make a down payment of 20%, which is $170,000. At closing, they need to pay the remaining $150,000 of their down payment (since $20,000 was already paid as a deposit).
Legal and Administrative Fees
They are responsible for covering conveyancing fees, which their lawyer estimated at $1,800, including taxes and disbursements.
Property Transfer Tax (PTT)
- The provincial Property Transfer Tax is calculated as follows:
- 1% on the first $200,000 = $2,000
- 2% on the portion between $200,000 and $850,000 = $13,000
- Total PTT payable = $15,000
Adjustments for Prepaid Expenses
The sellers had already prepaid property taxes for the year, totaling $2,400. Alex and Taylor are taking possession on August 1, so they will reimburse the sellers for taxes covering August 1 through December 31, a total of 5 months.
This adjustment is calculated as:
- $2,400 ÷ 12 months = $200/month
- 5 months × $200 = $1,000
Additionally, the townhouse is part of a strata, and the sellers had prepaid the monthly strata fees of $400 for August. Since Alex and Taylor are moving in on the 1st, they owe the seller the full $400 as part of the adjustment.
Final Payment at Closing
Here’s the final calculation Alex and Taylor’s lawyer will show on their statement of adjustments:
- Total funds payable at closing = $698,200
- Purchase price: $850,000
- Less initial deposit: -$20,000
- Remaining down payment: -$150,000
- Property Transfer Tax: +$15,000
- Legal fees: +$1,800
- Reimbursement for prepaid property taxes: +$1,000
- Reimbursement for prepaid strata fees: +$400
Don’t worry, this looks complicated but you’ll have assistance to complete this. Typically, your notary or real estate lawyer will handle all these calculations and details, and will run it all by you during your final meeting.
The Seller’s Statement of Adjustments
If you’re a seller, the Statement of Adjustments essentially calculates your net proceeds, showing you precisely how much money you will receive once the sale is complete.
These deductions commonly include the real estate commission paid to your agent, legal fees for handling the transaction, and the outstanding balance of any existing mortgages on the property that need to be paid off.
The final amount on the statement is your payout as the seller.
Typical Adjustments
Here’s what a seller can expect to see on their statement:
Credits (Money Received by the Seller):
- Purchase Price: The full sale price of the property.
- Prorated Property Taxes: Reimbursement from the buyer for taxes the seller has already paid for the year.
- Prorated Strata Fees: Reimbursement from the buyer for monthly strata fees paid by the seller.
Debits (Costs Deducted from the Sale Proceeds):
- Existing Mortgage or Mortgages: The balance to be paid off on any mortgages registered against the property.
- Real Estate Commission: The fees owed to the real estate agents involved in the transaction.
- Legal Fees and Disbursements: The cost for the seller’s lawyer or notary.
- Prorated Property Taxes: A credit given to the buyer if the annual property taxes haven’t been paid yet.
- Prorated Rental Income: A credit to the buyer for rent collected by the seller.
- Security/Pet Deposits: A credit to the buyer for tenant deposits.
The seller’s lawyer or notary uses this statement to pay off all the seller’s financial obligations before transferring the remaining funds to the seller.
Example: Selling a Detached Home in Burnaby
To better understand how a statement of adjustments works, let’s look at an example of a new home seller, Emily, who is selling her detached home in Burnaby.
Emily recently sold her home for $1,500,000. This is the agreed purchase price listed in the contract. Now, her lawyer will prepare a statement of adjustments to calculate all credits and debits related to the transaction.
Debits (Costs for Emily, the Seller):
- Real Estate Agent Commissions: Emily agreed to pay her realtor 5% of the sale price. This amounts to $75,000.
- Legal Fees: The cost for her lawyer is $1,500.
- Prorated Property Taxes: Emily had already paid the annual property tax of $6,000 in full at the beginning of the year. The sale is closing on September 30th, meaning Emily is credited for any unused property tax from October 1st onward. Based on a daily calculation, the prorated amount credited to Emily is $1,500 (for three months).
- Mortgage Payoff: Emily still has $450,000 left on her mortgage, which will need to be paid off from the sale proceeds.
Credits (Funds to Emily, the Seller):
- Sale Price: The total sale price for the home is $1,500,000.
- Tenant Deposits: Emily’s property had a renter, and the tenant’s security deposit of $1,200 will be transferred as a credit to the buyer.
Final Calculation:
- Total Sale Credits = $1,500,000 (sale price) + $1,500 (prorated property tax credit) = $1,501,500
- Total Sale Debits = $75,000 (agent commissions) + $1,500 (legal fees) + $450,000 (mortgage payoff) + $1,200 (tenant deposit) = $527,700
- Net Proceeds = $1,501,500 – $527,700 = $973,800
In this example, after all adjustments are accounted for, Emily will receive $973,800 as her net proceeds from the sale of her Burnaby home. Her lawyer ensures all financial obligations, like property taxes, commissions, and mortgage payoffs, are fully settled before the remaining funds are transferred to Emily. This straightforward process helps ensure a smooth financial transition for both the buyer and the seller.
Who Prepares the Statement of Adjustments in BC?
The Statement of Adjustments is prepared by a legal professional, which will be either a lawyer or a Notary Public. Usually, the buyer’s legal representative drafts the statement that is sent to the seller’s representative for review and approval. Finally, both parties must agree that the calculations are accurate before the transaction can be finalized.
Notary
A Notary Public in BC is a legal professional authorized to handle real estate transactions. Many buyers and sellers choose a notary because they often offer services at a slightly lower cost than lawyers. If the transaction is simple, notaries can work great.
Lawyer
A real estate lawyer can also handle the entire closing process, including preparing the Statement of Adjustments. While their fees might be higher, you may prefer a lawyer if your transaction is complicated. For instance, properties with title issues or non-standard terms in the purchase contract.
When Do You Get a Copy of Your Statement of Adjustments?
You’ll typically receive your copy of the Statement of Adjustments a few days before the completion date. Your lawyer or notary will schedule an appointment with you to review and sign all the final closing documents, including the statement.
For buyers, this meeting is when you’ll provide the bank draft for the remaining funds needed to close.
For sellers, this is when you’ll sign the documents authorizing the transfer of title to the buyer.
Ultimately, this timeline ensures there is enough time to get the funds to the seller’s lawyer and register the transfer at the Land Title Office on the completion date.
Need Help with Understanding This Process? Ask a Realtor
While your lawyer or notary prepares the Statement of Adjustments, your realtor is your guide throughout the entire process. An experienced Realtor can help you anticipate what you’ll see on the statement long before you get to the closing table.
Whether you’re buying or selling in Vancouver, Richmond, or Burnaby we’ll be familiar with typical adjustments you can expect, like municipal tax due dates.
Final Thoughts
Understanding how this document works can help you feel more prepared for the final steps of your home purchase or sale. Always take the time to review it carefully with your legal representative and ask questions if anything is unclear.
If you still have questions about your real estate transaction, don’t hesitate to contact us today.
