What exactly is a settlement statement and what information does it generally include?

Many (perhaps most) people will only buy or sell a few properties in their lifetime and therefore will only see a handful of settlements statements.  Moreover, the settlement statement is typically only looked at briefly and towards the very end of the home buying/selling process.  At that point in time, there is often enough excitement and exhaustion that many will simply sign their approval of what is contained in the statement if the numbers, “look about right.” 

The settlement statement, sometimes referred to as the HUD-1 or the ALTA Combined Settlement Statement (“combined” if it shows both buyer and seller credits and charges, whereas sometimes the buyer will receive a statement showing just the buyer side of the transaction and the seller will only see the seller side), is a document that lists all the charges and credits applied to the buyer and seller sides of a real estate transaction. 

All of those charges and credits lead to net numbers at the bottom of the statement showing what the buyer ultimately has to pay to the seller and what the seller will ultimately receive from the buyer. 

The credits and debits that run down the page(s) of the settlement statement and lead to those net numbers at the bottom will include:

(1)   The buyer’s earnest money deposit (paid upfront when the contract is signed);

(2)   Any seller credits to the buyer (for example, a seller credit for repairs or for closing costs);

(3)   The multiple fees charged by the escrow/title company (and not all escrow/title companies charge the same fees);

(4)   Prorations (the division of property-related expenses and income (if a rental property) between the buyer and seller as of the date the property will change hands, such as property taxes and rents);

(5)   Charges from the buyer’s lender (e.g. loan processing fees, appraisal fees, mortgage insurance and prepaid interest);

(6)   The cost of title insurance and homeowner’s insurance;

(7)   The cost to record the deed and mortgage documents;

(8)   Transfer taxes charged by the city and state in which the property is located; and

(9)   Commission to the real estate agents.

The above is not an exhaustive list. 

Rarely will a buyer and seller spend the time to carefully go item by item through the settlement statement to make sure it is as accurate as it should be, and to ask the escrow officer questions about any confusing items.  Failure to spend time on the statement could be costing unwary buyers and sellers hundreds or, in egregious cases with bad escrow officers handling the transaction (which does happen), even thousands of dollars.  So review those settlement statements carefully!

Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.