What are some common closing adjustments and how do you negotiate them with buyers/sellers?

1 Why closing adjustments matter

Closing adjustments can have a significant impact on your net proceeds or cash to close. They can also affect your tax liability and cash flow. Therefore, it is important to understand how they are calculated and how they can be negotiated. You should review the closing statement or settlement statement carefully before signing it and verify that the adjustments are accurate and fair. You should also consult your real estate agent, attorney, or accountant for advice on how to handle any disputes or discrepancies.

2 How to negotiate prorations

Prorations are the most common type of closing adjustments. They are based on the assumption that the buyer and seller share the expenses or income related to the property proportionally to the time they own or occupy it. For example, if the property taxes are $12,000 per year and the closing date is June 30, the seller would pay $6,000 and the buyer would pay $6,000. However, prorations are not always straightforward. You may need to consider factors such as the due date, the payment date, the assessment date, the billing cycle, and the ownership interest. You may also need to negotiate the proration method, such as whether to use a 360-day or a 365-day year, or whether to use a calendar month or a 30-day month.

To negotiate prorations effectively, you should do your homework and gather relevant information about the property and its expenses or income. You should also communicate clearly and respectfully with the other party and try to reach a mutually acceptable agreement. You should document the proration terms in writing and include them in the contract or an addendum. You should also check the closing statement or settlement statement for any errors or omissions and request corrections if needed.

3 How to negotiate credits

Credits are another type of closing adjustments. They are usually related to repairs, improvements, or concessions that the buyer or seller agrees to make or provide. For example, if the buyer requests a $5,000 credit for replacing the roof, the seller would reduce the purchase price by $5,000. Alternatively, the seller could offer to pay $5,000 of the buyer's closing costs or prepay some of the buyer's expenses. Credits can be beneficial for both parties, as they can help resolve issues, avoid delays, or save money.

To negotiate credits effectively, you should have a realistic and reasonable expectation of the property condition and value. You should also conduct a thorough inspection and appraisal and identify any defects or deficiencies that need to be addressed. You should prioritize the most important and urgent items and be flexible and creative in finding solutions. You should also document the credit terms in writing and include them in the contract or an addendum. You should also check the closing statement or settlement statement for any errors or omissions and request corrections if needed.

4 How to avoid closing adjustment disputes

Closing adjustment disputes can be caused by a variety of factors, such as misunderstandings, miscommunications, mistakes, or changes in circumstances. To prevent or minimize these disputes, it is important to hire a reputable and experienced real estate agent to guide you through the process. Additionally, reading and understanding the contract and its contingencies and clauses carefully can help avoid any confusion. Being honest and transparent about the property condition and disclosure is also key in avoiding disputes. Furthermore, being cooperative and responsive to the other party's requests or concerns can help resolve them amicably and promptly. Hiring a reputable and experienced title company or escrow agent can also help ensure that the closing statement or settlement statement is prepared and reviewed accurately and professionally. Finally, reviewing the closing statement or settlement statement before the closing date and attending the closing meeting with all necessary documents or funds can help verify that the adjustments are correct and consistent with the contract terms.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?