Settlement statement: Overview, definition, and example
What is a settlement statement?
A settlement statement is a detailed document that outlines the final financial breakdown of a transaction, often used in real estate or business transactions. It provides a clear summary of all costs, fees, and amounts paid by the buyer and seller, detailing the distribution of funds and final amounts owed. Settlement statements are typically prepared at the closing or completion of a deal and ensure that all parties involved understand the financial terms of the transaction.
In simpler terms, a settlement statement is a summary of all the financial details involved in a deal, making sure everyone knows exactly how money has been exchanged.
Why is a settlement statement important?
A settlement statement is important because it ensures transparency and clarity between all parties in a transaction. It helps prevent misunderstandings by clearly listing all charges, credits, and payments made during the process. For real estate transactions, it shows the buyer how much they owe and what they are paying for, and it shows the seller how much they will receive after deductions for fees, loans, or other obligations.
For SMB owners, especially in industries like real estate, understanding how to read and prepare a settlement statement is essential for ensuring that all financial aspects of a transaction are handled correctly and transparently.
Understanding settlement statements through an example
Let’s say you’re selling a property. After negotiating the sale price, both you and the buyer agree on terms, and the deal is finalized. At closing, the settlement statement will show the sale price of the property, any closing costs (like agent fees, taxes, or title insurance), and adjustments for things like property taxes or utilities. It will then calculate the net amount the seller will receive after all deductions.
For example, if the sale price of the property is $250,000, but there are $10,000 in closing costs, the settlement statement will show that the seller will receive $240,000 at the end of the transaction.
Example of a settlement statement clause
Here’s how a settlement statement clause might look in a contract:
“At closing, the Buyer agrees to provide a Settlement Statement detailing all costs and payments associated with the transaction. The Seller will receive the net proceeds after deducting any outstanding fees, taxes, and costs as outlined in the Statement. The Buyer acknowledges the amounts due and payable as stated in the Settlement Statement.”
Conclusion
A settlement statement is a key document in finalizing any transaction, providing transparency and clarity about all financial aspects of the deal. For SMB owners involved in real estate or any transactions requiring detailed financial reporting, understanding and properly preparing a settlement statement ensures smooth and accurate closure.
By reviewing and utilizing settlement statements, you can ensure that all parties involved in a deal are on the same page, reducing the chance of disputes and ensuring all financial obligations are met. It’s a crucial step in making sure your business transactions are legally sound and financially clear.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.