Colorado Broker Practice Test

The key idea is how a settlement statement tracks funds from the seller’s perspective. Money coming to the seller from the transaction is recorded as a credit because it increases the seller’s cash. The main incoming amount for the seller is the sale price, plus any other credits that go to the seller. Amounts the seller must pay at closing—such as paying off the mortgage, closing costs, or any prorations charged to the seller—are recorded as debits. Net proceeds to the seller are the result of credits minus debits. Since this represents funds the seller will actually receive, it is shown as a credit to the seller on the closing statement. For example, if the sale price is $300,000 (a credit to the seller), and the seller pays off a $250,000 loan plus $10,000 in closing costs (debits), the net to the seller would be $40,000, shown as the seller’s net receipt (a credit) on the statement.