What are “closing adjustments”?

Updated March 13, 2023.

“Closing adjustments” are credits or debits to either party to allocate responsibility for expenses already paid or to be paid. Property taxes are an expense that typically needs to be “adjusted” at closing. For example, if the seller has paid a full year of property taxes but sells the house to the buyer only five months after the taxes were paid, the seller received only five months of benefit from the payment of these taxes and the buyer will be getting the remaining seven months of benefit. Therefore, this payment is “adjusted” at closing by the buyer reimbursing the seller for 7/12ths of the yearly payment, which represents the seven months of taxes that were paid by the seller for the buyer’s benefit.

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