What are Settlement Statements?
Our comprehensive guide below will lead you through this complex and crucial document.
What is a Settlement Statement?
A Settlement Statement is a document produced to show the adjustments being made at settlement in favour of the buyer or seller. They take into consideration the purchase price, any deposit paid, if there is a mortgage to release, and any adjustments required for rates, water and/or body corporate if applicable.
Terms and their meanings
This is something paid in advance by the seller and correspondingly means it must be made in favour of the Seller, as they are charges incurred by the buyer.
This is something that needs to be paid by the seller for a period of their occupation, and it is made in favour of the buyer, as they are deductions incurred by the seller.
This means the charging period in which change of possession occurs.
This charge is for local council rates.
Water & Sewage Access
This charge is for access to water and sewerage connections from the local council. Some councils may incorporate these charges into rates charges (this means an adjustment is conducted as part of a rates adjustment, as opposed to a separate adjustment).
Special Meter Water Read
The water provider or local council will conduct a special water meter reading to ascertain the amount of water (measured in kiloliters) used at that specified date to compare and calculate against the last search reading. The reading will provide the kiloliter amounts and the rate per kiloliter used.
This charge is an adjustment made by us using specialised calculators for use of water, by the seller, from the special meter water read up to the day of settlement.
Body Corporate Adjustment
This is the levy adjustments required at settlement, in accordance with the information certificate.
Rental Adjustment means the adjustments for any rent or bond paid by a current tenant at the property.
How do rate adjustments work?
On settlement, rates must be adjusted for the current period and paid at settlement. This will provide our office with a breakdown of current rates for the current period (for example, 01/07/2021 to 31/12/2021) as well as any outstanding amounts owed for earlier periods.
If the rates are paid for the current period, we will not draw a cheque from the sale proceeds, as the plus adjustment will reimburse the seller for the days in which the buyer will own the property during the current period, as per your settlement statement.
If the rates are not paid, we will draw a cheque from the sale proceeds to attend to payment for both the seller’s portion and the adjusted portion paid by the buyer, by way of a plus adjustment. In this situation, it is the buyer who pays the seller back by adding a plus adjustment to the settlement statement, in exchange for a cheque being drawn from the settlement funds.
If credit is held by the council, then a plus adjustment will be made to “pay back” the seller for the credit held, as we are unable to request the return of the funds from council. The credit will then remain on the account for future use of the buyer. Generally, the adjustments section of a settlement statement will show whether credit has been accounted for at settlement.
How do water adjustments work?
There are two types of adjustments:
Water and sewerage access; and
Both adjustments are deal with differently and separately.
The water and sewerage access adjustment is a plus adjustment and the details of the period and charges are located on the rates search or the specialised water meter reading search from the water provider (for example, Unity Water or Qld Urban Utilities). This search will provide a breakdown of current water and sewerage access fees for the current period, as well as any outstanding amounts owed for previous periods on the settlement statement.
On the other hand, water usage is calculated from the last read date and gives an estimation of daily usage by the seller up to the settlement date. This is so that when the future account is issued after settlement, the seller will have already paid back the buyer for their use of water up to the settlement date by way of a less adjustment, as shown on a settlement statement. This is because the buyer will be required to pay the bill when it issues.
How do body corporate adjustments work?
There are three types of body corporate levies:
Administration fund; and
Sinking fund; and
We are required to adjust for the current period, similar to a rates adjustment. The details of the adjustments are located on the information certificate search. This certificate is obtained by conducting a search and requesting the certificate from the body corporate.
If the current period is outstanding, then a cheque will be drawn to cover the outstanding levies. Then an adjustment will be made to “pay back” the seller in exchange for a cheque being drawn from the settlement funds.
How do rental adjustments work?
If there is a tenant at the property, the managing agent does not conduct the rental adjustment, and we are required to ascertain where the rent is paid up to and create a plus adjustment or a less adjustment depending on how much rent has been paid.
If the rent is paid up to a date after settlement, and these monies have been paid to the seller, then we will do a less adjustment to credit the buyer for the period owed to them from settlement. This is different to requesting the seller to refund what they have been already paid. It is also because most standard form contracts and residential tenancy legislation provides that the seller is entitled to rent up until the settlement date and the buyer is entitled to it on and from settlement.
If the rent is unpaid, and is owing up to and including the settlement date, then we will do a plus adjustment to credit the seller back for the period up to settlement, as rent will have not been collected. The buyer will then be reimbursed in a future rental payment.
Any rental bond paid for the property is dealt with directly through the managing agent. It is the managing agents responsibility to ensure a change of property manager/owner form is completed, so as to notify the Residential Tenancies Authority (RTA) in Queensland. The bond will then continue to be held by the RTA pending the tenant vacating, and subject to any competing claim on the bond for any loss or damage claimed.
How do negotiated less adjustments work?
In some circumstances, if a less adjustment has been negotiated between the parties for repairs, in satisfaction of building and pest, then we will do a less adjustment for the negotiated amount. This adjustment will allow the buyer to attend to the repairs following settlement if they are minded doing so.