Your Guide to Closing Escrow: The Estimated Settlement Statement Explained

Real estate transactions can easily become some of the most complex and convoluted transactions around, and the estimated settlement statement shows up at the end of the transaction when people are generally feeling stressed and exhausted. A great real estate agent will do a phenomenal job of guiding you through the transaction, helping you to understand the options at the various decision points and making sure you understand the documents that you are signing. Alas, not all real estate agents are great. But I digress… At least two settlement statements will be generated, one for the buyer and one for the seller.

Today we will look at the estimated settlement statement from the seller’s perspective. The estimated settlement statement is prepared by the closing agent (in San Francisco the closing agent is traditionally the title company that is acting as your escrow agent). The estimated settlement statement (also known as the closing statement) is the estimate prepared to show the seller how much money they will be receiving from the sale after all closing costs, taxes, and transaction fees are paid for. In the event that the sale price doesn’t cover all of the costs, the closing statement would show the seller how much money the need to bring to the closing agent so that the transaction can close.

Estimated Settlement Statement (Closing Statement)

So let’s break it down:

The top of the closing statement will generally explain the basics of the transaction. This should include the property address, buyer’s information and seller’s information. It goes without saying, but be sure your looking at the statement for your property and transaction — not someone elses file!

Top of Estimated Closing Statement

The next section will list the total consideration being received by the seller. In plain english, this is the sales price. This is the amount from which (almost) everything that follows on the statement will be deducted.

Sales Price

Real estate contracts generally contain proration language for things such as property taxes, homeowners association dues, management fees, or any other costs that run with the property. In San Francisco, regardless of the number of days in the actual closing month items are prorated based on a 30 day month. The next section lists the prorations, which for this transaction were only county property taxes.

Prorations (taxes, HOA fees, etc.)

In San Francisco, the seller pays the real estate commission, which is split between the listing agent and buyer’s agent.

Next up will be the loan payoff section, which will list the principal balance to be paid off, any accrued interest (mortgages are paid in arrears). In addition, lenders generally charge a variety of administrative fees that are often have names like reconveyance fee, statement fee, administrative fee, etc. In addition, there will be charges to record the payoff of the loan at the city/county (providing proof in the public record that the seller has successfully paid off the loan in question). These fees show up on this closing statement as the recording fee and the wire fee.

Loan Payoffs and Associated Fees

In San Francisco, the title company generally acts as the escrow agent and the buyer is responsible for both escrow fees and title insurance costs. The title company will collect and pay the county transfer tax in San Francisco (essentially, a sales tax on real estate transactions). They also generally charge a wire fee (why is beyond me, but I digress), and a notary fee to notarize signatures. This particular settlement statement also has a $4.00 charge to record a document particular to this transaction in the public record.

Title and Escrow Charges

Next up comes a section that is listing any additional payments made to third party companies during the transaction on behalf of the seller. In San Francisco, these are generally for city or state mandated disclosure reports. This estimated settlement statement has a payment of $330 to an energy company, $89.95 for a required natural hazard disclosure, $125 for a required city disclosure (3R report), and $395 for an escrow coordinator fee (the transaction manager being used by the listing agent).

Payments to 3rd Parties

The next line is, depending on the sales price, the happy line or the sad line. It will total up the charges against the sales price, and estimated the proceeds to the seller (if it is the happy line) or the amount needed from the seller to close the transaction (in which case it is the sad line).

Proceeds due to (or needed from) Seller

Finally, it is important to remember that all of the charges in the closing statement are estimates! Things can adjust based upon the actual closing date (in particular, these would be things like tax prorations and accrued interest). Escrow agents can close a transaction with excess funds, but they cannot close a transaction that does not have enough money in escrow to cover all costs, so escrow agents (title companies in San Francisco) will generally estimate slightly high and then immediately cut a check to refund any overcharges after the escrow has closed. All parties receive a final settlement statement once the transaction has closed.

It is an Estimate until it is Closed!

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