Many people find real estate purchases both exciting and highly stressful. In addition to choosing the right house, they must review, understand, and sign many complex documents. Not to worry. Today, Sabrina, the real estate lawyer of Varity Law, will explain how to read real estate purchase documents such as the statement of adjustments (SOA), invoices, and trust ledgers.
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Statement of Adjustments (“SOA”)
What is a statement of adjustments SOA in real estate? A Statement of Adjustments is prepared for the closing day whenever you buy or sell a house. This document outlines the purchase price, accounts for the deposit, and prorates any prepaid expenses like property taxes and utilities.
- Sale/Purchase Price—This is the agreed-upon price for purchasing the property. If the purchase price has been subject to many negotiations and updates, ensure the latest one is used on the SOA.
- Deposit – This is the deposit already paid by the buyer to the realtor. On the SOA, this amount must be deducted from the purchase price since it has already been paid. This deposit is held by the realtor and will be applied towards their commission + HST. The seller is the party who pays both realtors’ commissions. If the deposit is higher than the commission, the realtor will directly refund the excess back to the seller. If the deposit is lower than the commission, then the closing lawyer must cut the realtor a cheque from the sale proceeds.
- Property Tax – all expenses related to the property must be adjusted to the day of closing. For instance, if the closing date is May 1st, 2022, then the seller must pay for all property taxes before May 1st, and the buyer must pay for all property taxes after May 1st. However, municipalities will not adjust property taxes to the date of closing, so the lawyer must do it. Hence, if the seller over-paid their property taxes (e.g. they paid to June 1st already), then the lawyer will credit that amount in favour of the seller on the SOA. Conversely, if the seller under-paid their property taxes (e.g. they only paid to April 1st), then the lawyer will credit that amount in favour of the purchaser on the SOA.
Other expenses related to the property – such as common expenses (if the property has a management office). Similarly, if the seller over-paid, then the lawyer will credit the seller on the SOA, and if the seller under-paid, then the lawyer will credit the buyer on the SOA.
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Legal Invoice
This document contains the lawyer’s legal fees and 3rd party costs and includes the following:
- Lawyer’s legal fees + HST;
- Property search costs– the more registered debts there are, the higher this cost – it’s usually between $50 – $150
- Title insurance – this covers title defects that are undiscovered through the lawyer’s property searches – typically, the lawyer will search against the most common title problems, such as registered debts, but will not search against every possible risk – for instance, whether the seller has done renovations without a permit, or whether there are unregistered debts such as unpaid utilities. The buyer only needs to pay for title insurance once, and that insurance remains effective until the buyer sells the property.
Other expenses – including courier and bank fees – are usually between $50 – $150.
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Trust Ledger
This is the final summary document that shows the down payment that the buyer must bring in. It combines the information from the SOA and invoice above. Specifically, it includes:
- Debit: the amount to be sent to seller’s lawyer on closing date – this is the amount on the SOA (purchase price minus deposit, and after making other adjustments such as property taxes);
- Debit: legal fees & disbursements (the final amount on the legal invoice)
- Debit: electronic registration fee – most properties require registering the deed and the mortgage – currently each registration cost $78.79 – so two registrations (deed + mortgage) would be $157.58；
- Debit: land transfer tax (always paid by the buyer);
- Credit: principal from the buyer’s mortgage company （directly deposited into the lawyer’s trust account）;
- Credit: down payment to be brought in by the buyer on or before closing date.
The final amount of the debit column and the final amount of the credit column must be equal to each other.
Conclusion
Real estate purchase documents include Statement of Adjustments (SOA), invoices, and Trust Ledgers. Although the legal documents for a real estate purchase appear overly complex, once they are clearly explained, the buyers should have no problem understanding all the details. We hope this article resolves much confusion and will relieve your pressure as a buyer so you can focus on enjoying your new property.
In this article, we are providing general legal information, not specific legal advice that would fit your situation. For specific questions, please book an initial free consultation with us by calling 905-597-9357 or emailing hello@varitylaw.ca
Additional resources on real estate documents:
