The settlement process involved in selling your home can be confusing. There are so many additional fees and issues that need to be resolved between the buyer and seller that often both sides leave with a bad taste in their mouth, much like after eating one too many salty bird meals. However, through the HUD-1 Settlement Statement, figuring out the adjustment to costs shared by buyer and seller is simple and requires no original thought on behalf of both sides.

During the settlement process, it is vital that adjustments need to be made between the buyer and seller relating to issues and expenses that are shared. Costs like property taxes, homeowner association dues, special assessments, utility bills, and fuel bills are expenses that relate to the property that has to be paid on a timed basis. Property taxes are an annual expense that can be easily divided between the buyer and seller based on the date of the transaction. Additionally, the shared costs of utility fees can easily be avoided if the utility companies are notified of the change in ownership. In most instances, the utility company will come on the day of settlement for a special reading in order to easily clarify how much the seller owes the buyer in terms of utility expenses. However, in instances of these other shared fees, arrangements or “prorations” must be made between the buyer and seller prior to the settlement in order to determine how these costs will be shared.

Once these cost sharing arrangements have been determined, they will be easily documented on the HUD-1 Settlement Statement. Tax costs and other expenses related to the home transaction will be stated as usual within the HUD-1 Settlement Statement, however, the adjustments between buyer and seller will be stated in Sections J and K. In instances where the seller owes money for costs that the buyer has paid for, the seller has the option of either paying this amount or deducting that amount from sums owed to the seller from the buyer.

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