It’s the moment when you can’t stand the thought of dealing with another piece of paper related to your home sale that the seller’s closing statement (aka settlement statement) lands in your lap.
Muster up the energy to read it anyway.
What looks like a bunch of dollars and debits reveals an exciting calculation: how much you’ll pocket at the end of the day, after accounting for all those pesky fees.
This is your chance to make sure there aren’t any thousand-dollar charges listed where they shouldn’t be.
We looked to all the parties who touch this document—experienced real estate attorneys, title company officials, and real estate agent Lorraine Lynn of Keller Williams in Columbus, Ohio, who has seen 68% more closing statements than the average agent in her area. With their help, we to put together this cheat sheet that breaks it all down into plain English.
Unless terms like “impounds” and “prorations” are part of your daily vocabulary, you’ll need help deciphering the jargon.
What is the seller’s closing statement, aka settlement statement?
The seller’s closing statement is an itemized list of fees and credits that shows your net profits as the seller, and summarizes the finances of the entire transaction. Sellers can expect to pay between 6-10% of the final sale price in commissions and closing costs, so it’s nice to see exactly where that money is going.
There’s no single boilerplate “closing statement” form for sellers from state to state, so don’t expect your statement to look exactly like the one below.
However, the seller’s settlement form developed by the trade group ALTA (American Land Title Association) is widely used across the nation for real estate transactions, and lists the main terms you’re likely to see on your statement (so we use it as an example here).
You may see the settlement statement come into play in coordination with the “Closing Disclosure” form.
In the wake of the subprime crisis, the Consumer Financial Protection Bureau requires that buyers receive the Closing Disclosure, outlining loan costs among other fees and information pertinent to the borrower, no later than 3 days before closing for review.
If you as the seller offer to pay any of the buyer’s fees for obtaining a loan, you’ll likely get a version of the Closing Disclosure as well which outlines exactly what the lender’s charges are, according Michael O’Neill, an attorney with Carol Clark Law, Atlanta, who’s supervised over 3,000 closings.
Depending on what state you’re in, the settlement statement, a separate document, will be prepared by either an attorney, a title company, or an escrow firm, and the actual closing will be held at the offices of one of these three locations.
See what type of closing your state requires using the map below.
Don’t confuse the seller’s settlement statement with the net sheet
You might get a document early on in your home sale that looks and feels like the closing statement—however, what you’re looking at is the seller’s net sheet.
The seller’s net sheet is not an official document but an organizational worksheet that your agent will fill out to estimate how much you’ll pocket from your home sale after factoring in expenses like taxes, your real estate agent’s commission, your remaining mortgage, and escrow fees.
You might receive a seller’s net sheet more than once over the course of your transaction—most likely at the time of listing your property, and after you receive an offer, as the numbers will shift depending on how much your house sells for.
These estimates aren’t just for your peace of mind but are a key part of negotiations with buyers, says Lynn. How can you compare offers if you don’t know which one will give you the most money once the deal wraps?
The highest bid could be a worse deal after you account for whether the buyer’s asking for you to cover closing costs, or wants you to pay for a two-year home warranty.
An experienced agent should be able to estimate your net proceeds with a high degree of accuracy, subject to change as negotiations progress throughout the transaction.
“I can get it down to about the penny,” says Lynn.
That means your final net proceeds shouldn’t come as a surprise when the closing statement rolls around, and you’ll know to check the numbers twice if they’re drastically different.
The seller’s settlement statement explained, line by line
Let’s dig into the document itself, shall we?
Here we’ll walk you through each part of the settlement statement pictured below:
- The topline info (basics about the property and parties involved)
- Loan Charges
- Title Charges/Escrow Fees
- Real Estate Commissions
- Government Recording Fees
How to read the top of the settlement statement
At the top of the document (before you get to the portion that looks like a spreadsheet) you’ll see a few boxes for inputting information that records basic details about the transaction, such as the names of the buyer and seller, the property address, and the closing date.
Here’s a line-by-line breakdown:
- File No./Escrow No.
Think of the escrow number like your bank account number—it’s a series of digits specific to a single transaction between a buyer and seller.
- Date & Time:
Date and time of the closing, such as June 15, 2018 at 10 a.m.
- Officer/Escrow Officer:
The name of the officer facilitating the closing.
- Settlement Location:
The physical location where the closing is happening, such as an escrow firm or title company office.
- Property Address:
The address of the property being sold.
First and last name of the buyer(s)
First and last name of the seller(s)
The name of the company financing the loan for the buyers.
- Settlement date:
Aka closing date.
- Disbursement Date:
The date when funds will be disbursed into your bank account. Closing day is usually payday, and in most cases, you’ll be able to collect your home sale profit as soon as the ink dries on the final documents. (Pro tip: Pick a Monday through Thursday closing date during local banking hours for the speediest payment. Close on a Friday, and you may have to wait until Monday to receive payment.)
- Additional dates per state requirements:
Such as the tax payoff date or recording date (which sets the timer for ownership of the property).
Debits vs. credits on the closing statement
Like your typical budget balancing sheet, the seller’s closing statement is organized into Debits (expenses) and Credits (deposits or increases) to the account. Other forms might have columns labeled as “Seller Charge” and “Seller Credit,” which mean the same thing.
Now let’s get into the different spreadsheet sections on the closing statement.
The first part of the form, labeled “Financial,” details the price your buyer is paying, and then lists items that are debited against that price.
- Sales Price of the Property:
The final sales price, from which everything else will be deducted.
- Personal Property
Any furnishings or personal property the buyer is paying for and you have agreed to sell them.
- Deposit including earnest money
The amount the buyer put down in good faith toward the home as “earnest money” after the seller accepted their offer.
- Loan Amount
How much the lender is financing toward the sale.
- Existing Loan(s) Assumed or Taken Subject to
Only applicable in the case that the buyer is taking over the seller’s existing mortgage.
- Seller Credit
Any repair credits or buyer’s closing costs the seller has agreed to pay.
- Excess Deposit
Any amount in escrow over what you and the buyer agreed to pay.
Under Prorations/Adjustments section, you’ll see how much you might owe in property taxes (school or county taxes) or homeowner association dues for the period leading up to the time you hand over the keys.
For instance, say you get billed for property taxes in February to cover the previous year. If you’re closing on a sale on April 30, the yearly property tax is “prorated” or calculated for the first four months of the year, and it’s reflected in this section.
Each locality may have unique taxes, like a garbage pick-up tax.
- School Taxes from (date) to (date)
Depending on your closing date and local school tax schedule.
- County Taxes from (date) to (date)
Depending on your closing date and local county tax schedule.
- HOA dues from from (date) to (date)
Depending on your closing date and HOA dues payment schedule.
- Seller Credit
Any money the buyer owes you for prepaid taxes or payments.
“Loan Charges to (lender co.)”
The next subhead, “Loan Charges’” details what the buyer’s mortgage lender is charging. You, the seller, may have agreed to pay some or none of these costs. It all depends on what you negotiated with the buyer during the closing process.
Mortgage “points” are additional fees due at closing in the event that the lender offered the borrower a lower interest rate in exchange for upfront costs.
- Application Fee
Charged to the buyer for processing an application for a loan.
- Origination Fee
Charged to the buyer for preparing and evaluating the loan.
- Underwriting fee
Charged to the buyer for preparing the loan and any associated paperwork.
- Mortgage Insurance Premium
Mortgage insurance is typically necessary when the buyer is putting less than 20% down on the home.
- Prepaid Interest
Daily interest accrued between the closing date and the date of the buyer’s first monthly mortgage payment is due from the buyer at closing.
Other Loan Charges:
- Appraisal Fee
Fees required by the lender for a home appraisal (usually covered by the buyer).
- Credit Report Fee
Charged for pulling the buyer’s credit report (usually covered by the buyer or in some cases, the lender).
- Flood Determination Fee
Charged to the buyer to get the government-obtained document showing whether the property is located in a flood plain.
- Flood Monitoring Fee
Charged to the buyer for keeping tabs on a property’s flood status.
- Tax Monitoring Fee
Paid to tax service agency to notify lender if new owner falls behind on property tax payments.
- Tax Status Research Fee
For agency to check in on and report any late tax payments to the lender.
At closing the buyer sets up an impound account that allows them to bundle the cost of their mortgage principal, taxes, mortgage insurance, and other monthly costs into one payment. The lender likes this because they can make sure the new owner will keep up to date with all the payments associated with the home.
A buyer might be required to pay some charges, like homeowners insurance premiums or county taxes, in advance at closing.
- Homeowners insurance ___mo @ $ ___/mo
The frequency at which homeowners insurance is due, and how much is owed.
- Mortgage insurance ___mo @ $ ___/mo
The frequency at which mortgage insurance is due, and how much is owed.
- City/town taxes ___mo @ $ ___/mo
The frequency at which city/town taxes are due, and how much is owed.
- County taxes ___mo @ $ ___/mo
The frequency at which county taxes are due, and how much is owed.
- School taxes ___mo @ $ ___/mo
The frequency at which school taxes are due, and how much is owed.
- Aggregate adjustment
A calculation to prevent the buyer’s lender from collecting more money from the buyer than is allowed by RESPA (the Real Estate Settlement and Procedures Act). (They can’t hold onto more than ⅙ of the new homeowner’s property tax and insurance payments).
“Title Charges and Escrow/Settlement Charges”
“Title Charges Escrow” or “Settlement Charges” are all fees charged by title or escrow companies for performing tasks like notarizing signatures.
- Owner’s Title Insurance ($ amount)
Protects buyer from unknown defects with the title.
- Owner’s Policy Endorsement(s)
Tailors owner’s policy to the specific transaction.
- Loan Policy of Title Insurance ($ amount)
Protects lender from unknown defects with the title.
- Loan Policy Endorsement(s)
Tailors lender’s title insurance policy to the specific transaction.
- Title Search
The fee to search the public records for the property being sold.
- Insurance Binder
In place of an owner’s policy, buyer purchases two-year interim binder as a commitment to issue a title policy.
- Escrow/ Settlement fee
Charges for conducting the settlement.
- Notary Fee
To pay licensed notary for witnessing document signatures.
- Signing Fee
Additional notary or document signing fees.
The “Commission” section refers to real estate agent commissions, which are typically paid for by the seller at 5-6%, but split between the buyer’s and seller’s agent.
- Real Estate Commission
Owed to seller’s agent.
- Real Estate Commission
Owed to buyer’s agent.
Any other commissions owed.
“Government Recording and Transfer Charges”
Government recording and transfer charges are fees levied by the county, state, or municipality for recording the deed and mortgages of the new owner.
- Recording Fees (Deed)
Charged for legally recording new deed (buyer usually pays, but can be negotiated).
- Recording Fees (Mortgage/Deed of Trust)
Charged for legally recording new mortgage (buyer usually pays, but can be negotiated).
- Recording Fees (Other)
Any additional recording fees owed.
- Transfer Tax
Charged by local/state governments when a property changes hands.
- Transfer Tax
There may be multiple transfer taxes owed, hence the second line.
There’s a good chance that when you sell your house, it isn’t completely paid off and you still owe on the mortgage. You’ll use the sale of your home to pay off your remaining existing mortgage. The “payoff” section of the seller’s closing statement details those amounts and any associated fees or charges
Lender: Payoff Lender Co.
- Principal Balance ($ amount)
Amount of loan remaining unpaid, minus interest and other charges.
- Interest on Payoff Loan ($ amount/day)
Any interest owed through the day you pay off the loan.
- Additional Payoff fees/Reconveyance Fee/Recording Fee/Wire Fee
Fees associated with paying off the loan and getting released from your current mortgage.
- Interest on Payoff Loan ($ amount/day)
And finally, “Miscellaneous” refers to charges that are typically the responsibility of the buyer. In negotiations, however, it’s possible that you agreed to cover some of the fees.
The buyer may ask you to pay for a home warranty policy, for instance, while they cover the costs for a pest inspection on your home. This will be reflected in the debits and credits.
- Pest Inspection Fee
A pest inspection before closing is separate from the home inspection and checks for signs of a termite infestation among other pest issues.
- Survey Fee
Fee to professional surveyor for drawing of the property being sold.
- Homeowners insurance premium
The lender will require proof of insurance for buyer’s loan to go through.
- Home inspection fee
Fee to the home inspector for performing a visual inspection of the home to check for major issues.
- Home warranty fee
Covers repair/replacement of big appliances for usually up to a year.
- HOA dues
Homeowners association fees owed.
- Transfer fee to Management Co.
Fees associated with transferring HOA membership from seller to buyer.
- Special Hazard Disclosure
Cost of obtaining hazard disclosure form.
- Utility Payment
Outstanding utility bills.
If your HOA requires annual property assessment, it may need to be paid upfront in a lump sum.
- School taxes
Usually based on the home’s value.
- City/town taxes
Usually based on the home’s value.
- County Taxes/County Property taxes
Any additional taxes owed to the county.
- Buyer attorney fees
Covered by the buyer.
- Seller attorney fees
Covered by the seller.
At the end of the page… there it is under “subtotals”—the number of dollars due to the seller…. The number you’ve been so anxious to see.
Some unfortunate sellers who are “underwater” on their mortgage, meaning they owe more than the home is worth, might actually write a check, rather than walking away with one.
Fortunately, there are far fewer underwater owners now than there were following the subprime mortgage crisis. If you’re lucky enough to sell when the market’s on an upswing, you stand to benefit from a nice windfall.
Work with an experienced listing agent and attorney for smooth closing logistics
From your perspective, walking away from the closing table with a check for the correct number is what’s most important.
To be confident that there are no errors after the complicated dance of fees involved in a home sale, hire an experienced real estate attorney who can go through each line of the settlement statement with a fine-tooth comb.
Meanwhile, work with a real estate agent who has a sixth sense about settlement hitches.
Lynn makes sure the buyer’s lender meets the deadline of supplying the buyer with the required CFPB Closing Disclosure, noting that “some lenders might not tell you [that they won’t meet the three business days before closing] requirement until right before the closing.”
Her team puts a call out to the title company to check on the status of the Closing Disclosure proactively, so no one ends up at the closing table only to realize the deal can’t move forward.
Sense a theme here? All around, it’s the attention to detail that makes for a smooth closing!
Header Image Source: (Rawpixel/ Pixabay)