Humber/Ontario Real Estate Course 3 Exam Practice

Regarding a property’s statement of adjustments, how should a payment made by the seller for the year’s taxes be credited at closing?

1. Buyer; $598.36

2. Buyer; $1,800.55

3. Seller; $598.36

4. Seller; $604.93

The correct answer is: Seller; $604.93

In real estate transactions, a statement of adjustments is used to reconcile the financial obligations of both the buyer and the seller at closing, particularly concerning prorated costs such as property taxes. When the seller has already paid the property taxes for a certain period that extends beyond the closing date, they are essentially prepaying for service that the buyer will benefit from once they take ownership. Therefore, at closing, this prepaid tax amount should be credited to the seller, reflecting an adjustment in their favor. Considering this context, the correct value to credit to the seller corresponds to the amount of tax that the seller has paid for the buyer's benefit. The specific amount of $604.93 indicates the prorated share that accounts for property taxes already paid by the seller that the buyer is responsible for from the closing date onward. This ensures that the seller is reimbursed for the portion of the tax year they have already covered, thus maintaining fairness in the distribution of costs associated with the property. This adjustment accurately reflects the financial obligations related to taxes and is critical for ensuring both parties are fairly compensated at closing.