What entry reflects closing costs in a real estate settlement?

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Study for the Burk Baker National Test. Use flashcards and multiple choice questions with hints and explanations to prepare effectively. Get ready for your exam!

Multiple Choice

What entry reflects closing costs in a real estate settlement?

Explanation:
Closing costs are fees the buyer pays at closing to obtain the loan and complete the sale. In the settlement ledger, this outflow is shown as a debit against the buyer because it increases the buyer’s obligations at closing. The corresponding credit is shown to the seller to balance the transaction on the settlement statement, since those funds are being disbursed through the closing process to pay the various providers (lenders, title company, etc.) rather than increasing the seller’s proceeds. In short, buyer pays the costs, so the entry is a debit to the buyer and a credit to the seller.

Closing costs are fees the buyer pays at closing to obtain the loan and complete the sale. In the settlement ledger, this outflow is shown as a debit against the buyer because it increases the buyer’s obligations at closing. The corresponding credit is shown to the seller to balance the transaction on the settlement statement, since those funds are being disbursed through the closing process to pay the various providers (lenders, title company, etc.) rather than increasing the seller’s proceeds. In short, buyer pays the costs, so the entry is a debit to the buyer and a credit to the seller.

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