Real Estate: Understanding the Settlement Statement

When I was younger, I just assumed that people in jobs and in certain roles were automatically great at their job. That is how they got there in the first place right! Not always. Some are handed jobs, some are great at their given job but are having an off day.

I find we should have a basic understanding of the things that make a meaningful impact on our lives. For me currently, that is Real Estate and the state of our Finances. Being in finance for the last ten years, I may be a bit more anal about going through closing documents than most but if you are curious what you are really paying for to get those shiny new keys, this blog post may be for you.

Above all else, I will go into the few places I have personally caught issues on closing documents saving me thousands in the long run. As I started out by saying, some people a.      re great and just may be having an off day, others may just actually suck at their jobs. Either way, don’t let it cost you thousands.

                  Real Estate: Understanding the Settlement Statement

The Settlement Statement, often referred to as the Closing Disclosure is going to be your favorite document if you're a numbers person. If you’re not geeking out about a financial document, don’t panic! This document comed with brief detailed descriptions and supporting pages that go into more detail only if you want it. By the end of the next few paragraphs, I hope you’re willing to give it a shot.

Let's look at a Settlement Statement from our most recent purchase and talk through some of the main points below.

Top Priorities

Contract Sales Price - Confirm it is correct. Seems silly but after renegotiations with a buyer or seller this may not always be represented the way you expected.

Settlement Charges (Line ____) - Without the supporting document, in this case Line Item 1400, this total wouldn’t make much sense. With the second page you will see the total is made up of Fees the Company Closing, Title Insurance, Recording Fees, City/County/State Fees and Taxes. There are a number of other items here so go slow and be thorough.

Deposit or Earnest Money - This is the biggest one to make sure is accurate! I have on two separate occasions had this left off of the initial Closing Disclosure sent for my review. The reason this is so easy to miss is we often put money in an Escrow Style Account with the bank to get environmental or anything else we need to get going before our LLC is even open.

Mortgage - Often called a number of things, this is simply the line item that spells out how much you are borrowing.

Dues - Taxes, Rent, Security Deposits, Etc.

Fairly straight forward when you start to work through a few of these documents. Above was for the purchase of a commercial building with one tenant, financed with a private mortgage.

Next you will see an example of a sale of a flip. Take a minute to see if you can spot any differences.

Lastly we will look at refinance where the Sellers column will be left completely blank.

If you’ve taken nothing away from today's blog, please know this. Just because the person sending you something is a professional, doesn't mean they don't make mistakes. Those mistakes in the Real Estate world can cost thousands.