Real Estate Terms, Tips & Advice
Common Real Estate Definitions
Completion Date (Closing Date)
At its simplest the Completion Date in a real estate contract is the date the property is transferred and the money for the purchase is paid to the Seller by the Buyer.
In a real estate contract the adjustment date is the date that calculations for such items as property taxes, water accounts, rents, damage deposits, etc. are modified.
The Possession Date in a real estate contract is the date that the Buyer has the right to take possession of the property.
Check to make sure that the Completion Date is not a weekend or a holiday.
The Possession Date and the Adjustment Date generally should be the same day. The day the Buyer takes possession of the property is the day that he would expect to start to be charged for property taxes, water and so forth – not before.
Real Estate Related Explanations and Recommendations
When a home is being sold realtors generally recommend that sales contracts be written with the completion date at least 1 day before the possession date. This recommendation is made to avoid a situation where circumstances may cause a delay in the completion of the purchase and the Buyer has no place to move to. In addition this insures that the Seller gets the sale proceeds well in advance of giving up possession.
The Buyer or the Seller can, however, instruct their respective Realtor to have the purchase contract written with both completion and possession on the same day. From the Seller’s perspective the delay in possession makes sense. However, the Buyer must pay for a home, and in most cases begin to be charged interest on a mortgage, without having the benefit of living in it. With that being said, most completions do go smoothly and having completion and possession on the same day is generally not an issue.
Please Note: In the final analysis, all dates in a real estate contract are a matter of negotiation between the Buyer and the Seller.
Completion Date and the Buyer’s Mortgage
- Unlike rent which you pay in advance interest on a mortgage is paid in arrears. When you pay rent on the 1st of a month you are paying in advance for the balance of that month. With a mortgage you do not pay interest when the mortgage starts, your first payment always occurs after. In other words you have to have use of the money first before you can be charged for it.
- Interest begins to be charged when the Mortgage is advanced on the Completion Date.
- In most cases mortgage payments are made on a monthly basis. Many lending institutions also offer additional payment options.
This gives the Buyer/Borrower the advantage of being able to enjoy their new home for a whole month without having to pay interest, and it allows extra time for the Buyer/Borrower to earn additional money to make the first payment. This advantage can be of even greater importance when the property being purchased has revenue – i.e. from a rental suite.
Dates and your Mortgage (Properties with Suites)
Most Buyers who purchase properties with a rental income require mortgage financing. Because of this fact a lot of thought should be given to the selection of the completion, adjustment and possession dates. The Buyer should remember that:
- It is in their best interest for the completion, adjustment date and possession date should be the same
- Rent is paid in advance and almost always paid on the 1st day of the month;
- The first mortgage payment is always due after the property is purchased (The completion date);
- The Adjustment Date is the day that any existing rents, damage deposits and damage deposit interest are adjusted.
With a little planning the Buyer can use this information to enjoy the previously mentioned advantages and also have the additional benefit of putting most of the first month’s rental payment in his pocket. This is how it works:
- The Buyer has a contract of purchase and sale draw by his Realtor on a property which has a two bedroom suite which rents for $1,000.00 per month, payable on the 1st day of each month.
- The Completion, Adjustment and Possession date are set for January 2nd.
- The Buyer requires mortgage financing to complete the purchase.
- The Buyer’s new mortgage which has monthly payments of $1,000.00 is to be funded on the Completion Date (January 2nd).
- Therefore the first payment would be due the 2nd day of the following month (February 2nd). Because the Completion Date is after the 1st of the month when the rent is due it is the Seller’s responsibility to collect it for the month of January.
- Further, as the Completion and Adjustment date are the same (January 2nd) and come after the Seller is to collected the rent, the rent must be adjusted between the Buyer and the Seller for the balance of the month of January.
The results are twofold:
- First the Seller in effect has guaranteed the payment of the rent for January and has saved the Buyer the work of collecting it.
- Second the monies to be paid by the Buyer to purchase the property will be reduced as the Seller will be required to give a credit to the Buyer for the rent from January 2nd to January 31st in the amount of $967.75. These calculations are done by our office.
* Please note that all advice on this page is a recommendation only and is not a legal requirement.