At closing, the settlement statement adjusts buyer and seller’s debits and credits. It includes the sales price of the property, deposits made towards the purchase price and the new loan amount. Pro-rations and adjustments include taxes, daily cost of early occupancy if applicable, escrow hold backs for exterior paint, landscaping and other hold backs identified by the appraiser. On the buyer’s side are the loan origination fee and prepaid interest charges. Other loan charges can include the flood certification, credit report fee and tax service to Alaska Realty Tax service. Buyers also establish reserves for homeowner’s insurance and property taxes. They also pay for the lender’s title policy.
Buyers and sellers generally share in the cost of title document preparation, recording fee and the settlement fee paid to the title company. They usually also share in the cost of the deed preparation and recording. Sellers debits
Include the payoff of any first and second mortgages, liens and real estate commission. All of this is fairly straightforward but how much or any of these seller or buyer costs should be disclosed to one another is the question. Both buyers and sellers should be entitled to privacy when it comes to their financial affairs and home purchases. What a seller makes or doesn’t make on the sale of the home is not relevant to the buyer and vice versa. Sellers are not entitled to know the terms of the buyer’s financing and their down payment requirement, whether or not they are having to pay for mortgage insurance.
It should be the responsibility of the title company and the escrow closing officer they employ to go the extra mile and keep the settlement statements separate. As listing and selling licensees, we make it a point to ask on every closing for that confidentiality. A good example of how settlement statements can be misinterpreted is when buyers purchase a new home . The builder’s settlement statement can show as $100,000 or more on a $500,000 purchase price. But, does that amount represent the builder’s net profit? Absolutely not! Out of that $100,000 comes his original equity injection when he first received his construction loan, overhead (office space, gasoline, et cetera ) labor costs, and thirty days worth of subcontractor bills to finish the home. According to the National Association of Home Builders, the average net profit of a builder hovers around five to six percent. That’s about $25,000 to $30,000—a far cry from the builder’s proceeds showing on the settlement statement.
Similarly, a private seller may have made mortgage payments for ten years, replaced a furnace, aging kitchen appliances, installed expensive window coverings, planted and replaced trees and shrubs, paid homeowner’s insurance and if a condo, expensive HOA dues. Although different from the builder because they have had the pleasure of living in the home, their seller’s net is not what is showing on the settlement statement and doesn’t even necessarily reflect their own closing costs and down payment when they initially purchased the home. In today’s world where everything seems to be disclosed and available online, let’s not fall into that mode. Lets keep buyer and seller proceeds private from one another, even if it means a little more work on the part of the escrow closers.