Adjustments are a part of the process of transferring ownership and obligations from one property owner to the next.
At settlement, we will prepare a statement of adjustments. It takes into account what has already been paid and what needs to be paid, and by who (either the vendor or the purchaser), for council rates, water rates, any land tax or owners corporation fees, and any other recurring income or expenses that relate to the property.
For example, council rates are assessed for the period from the 1st of July to the 30th of June in any given year. If settlement of your property takes place on the 1st of January, then an adjustment is made so that the purchaser pays the council rates from 1 January to 30 June. If the total council rates for the year were $1,000.00, then the purchaser’s portion would be $500.00, and this will be reflected in the statement of adjustments.
All adjustments are calculated on this basis. If there are any outstanding amounts payable to the council or other authorities, then they are paid out of the money payable to the vendor at settlement. This process ensures that both the vendor and the purchaser only pay their share for the part of the year that they actually own the property. It also ensures that the vendor pays any outstanding amounts, including for previous years, so that after settlement all authorities are paid up to date.
Because adjustments will vary for every property, you can’t be sure of exactly how much extra you will be required to pay at settlement. So, when you’re planning your finances, keep in mind that an extra little buffer will be required to take care of adjustments.