What does an adjustment in a settlement statement represent?

An adjustment in a settlement statement reflects a change made to account for prepaid and accrued items. These adjustments are crucial during the closing process of a real estate transaction as they ensure that both the buyer and seller are correctly credited or debited for expenses that have been incurred prior to the closing date or that are owed for future periods.

For instance, if a seller has paid property taxes in advance for a period that extends beyond the closing date, the buyer would be credited for the portion of taxes that they will be responsible for covering after the closing. Conversely, if there are expenses that have accrued but remain unpaid (like utilities), the seller might need to provide an adjustment to compensate the buyer for those accrued costs.

This process protects both parties by ensuring that they only pay for the periods they actually own the property and that all financial obligations are accurately settled. Adjustments like these are a standard practice to compile a fair and correct final account of the transaction, based entirely on the timeline of ownership and responsibility for costs.