Glossary
Adjustment
A pro-rated credit or debit between buyer and seller at closing for prepaid or outstanding items such as property tax..
An adjustment is a pro-rated amount shared between the buyer and seller at closing for an expense that covers a period spanning the completion date, such as prepaid property tax. Because costs like municipal taxes, condo fees and utilities are billed on a yearly or monthly cycle rather than on the day of sale, one party usually ends up owing the other for the days each will own the property.
How an adjustment works in a Canadian closing
Municipal property tax is typically billed for a full calendar year, without regard to when ownership changes. If the seller has already paid the whole bill, the buyer receives the benefit of that payment for the remaining months and reimburses the seller. If the bill is still unpaid at closing, the seller credits the buyer for the months the seller owned the home. Condo or strata fees, prepaid utilities and heating fuel are handled the same way.
The statement of adjustments
Adjustments are calculated to the day and set out on a statement of adjustments prepared by the buyer's and seller's lawyers or notaries. That statement lists the purchase price, the deposit already paid, and each credit and debit, then arrives at the balance the buyer must bring to the closing. Adjustments sit alongside other closing costs, which can include land transfer tax and legal fees, so budgeting for them matters. A closing costs calculator can help estimate the total.
- The seller prepaid the full year's property tax but sold after several months: the buyer owes the seller the unused portion.
- Property tax for the current year has not been billed yet: the seller owes the buyer for the period before completion.
- Condo fees were paid for the month and the sale closes mid-month: the two sides split that month.
Why borrowers should plan for it
Adjustment amounts are usually modest but can swing either way, and a debit increases the cash the buyer needs on the completion date. Read the statement carefully, ask questions before releasing funds, and confirm the local billing cycle, because practices differ by municipality, province and property type.
Frequently asked questions
What does an adjustment mean when buying a house?
An adjustment is a pro-rated credit or debit between the buyer and seller at closing. It accounts for expenses such as property tax or condo fees that cover a period spanning the completion date. If the seller prepaid an expense, the buyer usually reimburses the unused portion; if a bill is still outstanding, the seller credits the buyer.
Who pays the property tax adjustment, buyer or seller?
It depends on who has paid and when. Municipal property tax is usually billed for a full year, so if the seller already paid it, the buyer typically owes the seller for the months remaining after completion. If the bill is still unpaid, the seller generally credits the buyer for the portion of the year the seller owned the home. Confirm the details with your lawyer or notary.
Are adjustments included in closing costs?
They are often grouped with closing costs, but they are a separate item. Adjustments balance expenses shared with the seller, while closing costs such as land transfer tax and legal fees are the buyer's own expenses. Both affect the cash required on completion, so review the statement of adjustments before finalizing your budget.
Sources
Related terms
- Statement of Adjustments — A Statement of Adjustments is the closing document that lists the amounts each party to a property transaction owes or is owed, fixing the final cash balance.
- Closing Costs — Closing costs are the one-time fees, taxes, and charges paid on top of a home's purchase price, separate from the down payment.
- Property Tax — A property tax is a municipal levy on property ownership, based on assessed value and the local rate, often collected with your mortgage payment.
- Completion Date — The date on which a real estate sale legally closes, the mortgage funds are advanced, and ownership of the property transfers to the buyer.
- Strata Fee — A strata fee is a monthly payment owners make to a strata or condominium corporation to cover shared building costs and common expenses.