Adjustments
What are "Adjustments"?
Adjustments are shared expenses.
When a property is transferred from a seller to a buyer, there will be some expenses that the buyer and seller need to share between them.
If you pay a bill for your property that covers a period of time, but you won't own the property for that entire time-frame, then you would want to be reimbursed for the amount you have paid that you are not using.
We make an "adjustment" in our financial statements for that expense, so each person pays an appropriate amount of that bill.
Do all of the property's bills get adjusted?
No.
Bills for specific services, such as inspecting a property, or having a professional cleaner come in to clean your carpets are paid by the person who asked for the service, and no adjustments are made for them. You order the service, you pay for it, and that's it.
If you have a bill that covers services that get cancelled when you move out, then that bill isn't shared either.
Think of gas or electricity: you get billed for these services monthly, but when you move out, you cancel your electrical service and you get a partial "final" bill.
The electrical service provider gives you electrical services up to your move-out date, then they cancel your account. You pay your final bill, and you're done. The buyer doesn't take over your account, so there is no need for it to be shared.
Bills which "belong to the property" get shared. These are bills for accounts that do not get cancelled just because someone moved out. Think of strata fees, or property taxes, which always need to be paid, no matter who is living there.
Give me an example, please
Let's say you paid $100.00 for your strata fees for the whole month of August, but you are moving out on August 15th, and the new people are moving in on that same day.
So you you have paid $100.00 for the whole month, but you are only living there for half the month. Not fair, right?
To fix this, the person buying your home will reimburse you for the portion of the strata fees that cover the time they are going to be living there.
Using our same example, the buyer of your property would give you $50.00 for their share of the August strata fees. That way everyone is happy - the strata gets paid, you are reimbursed for the extra money you paid, and the buyer's portion of the strata fees for the month are also covered.
How does this work with property taxes?
In most communities in BC, property taxes are an annual bill. There are a few communities where property taxes are paid twice a year, but that isn't very common.
Because property taxes can be a fairly significant amount of money, it's important to make sure that buyers and sellers share this cost fairly between them.
If you are selling your home after the property tax bill comes out, then you must pay the taxes for the year, and the buyer will reimburse you for the portion of the taxes covering the part of the year that they own the property.
If you are selling your home before the property tax bill comes out, then the buyer will generally pay the taxes for the year, and you will reimburse them for the portion of the taxes covering the part of the year that you own the property.
Special arrangements about how the property taxes get shared can be made between buyers and sellers. It's common to make these kind of special arrangements at the time time tax bill is issued.
Do I get a cheque for these adjustments?
No. Each transaction has multiple shared expenses, so it would be too painful to make buyers and sellers write separate cheques to each other for each of these adjustments.
Instead, we work it all out on paper, and adjust the final amount of money paid by the buyer to the seller based on all of these calculations.
The buyer brings in a draft to cover all of their share of these expenses, and the amount the seller receives is adjusted depending on which bills they share with the buyer.