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Analyzing Settlement Sheets in Real Estate Transactions

Jan 17, 2022

One of the most common questions our real estate clients ask is how to record the sale or purchase of a building. The question arises because at settlement you not only pay or receive the purchase price of the building, but also transaction costs, costs associated with loans, and reconciliation of any advance paid or unpaid expenses associated with the property. Although it can be overwhelming when you are looking at all the numbers and lines on a settlement sheet, the actual accounting is relatively straight forward. 

For a purchaser, the purchase price and transaction costs associated with the purchase of the building are allocated to land and building using a reasonable method. Costs associated with the origination of loans is recorded as an intangible asset on the balance sheet. Finally, advance paid and unpaid expenses/revenue are booked to the appropriate item on the income statement. 

For a seller, the sales price is considered the gross proceeds of the sale, and the costs associated with the sale are considered a non-depreciable increase in the basis of the assets sold. Advance paid and unpaid expenses/revenue are handled the same way as a purchaser and booked to the income statement. 

Click the links below to view two settlement sheet templates that illustrate how various items would be classified. 

Settlement Sheets Analysis Template1.pdf

Settlement Sheets Analysis Template2.pdf

Although initially daunting, the recording of a settlement sheet from a purchase or sale transaction can be easily accomplished by approaching it line by line. The above settlement sheet analysis is for the tax basis of accounting. Although GAAP follows similar principals there are some additional nuances that are outside the scope of this article. 

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Ralph Estel

Mr. Estel is a Senior Manager in the Private Client Services Group with over 10 years of experience providing accounting, consulting and tax services to middle-market clients. His clients include real estate and construction companies.

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