Understanding Final Water Bills in Real Estate Closings
When a home is sold, most utilities are easy to close out or transfer. Water bills, however, often operate on a delayed billing cycle, which means the final bill covering the seller’s period of ownership may not be available by the time of closing. To ensure fairness to both the buyer and seller, title companies use water escrows and a Final Water Bill or prorations to account for water usage.
This article explains why final water bills matter, how water escrows work, and what happens if a final bill isn’t available at closing.
Why Final Water Bills Are Addressed at Closing
Water is typically billed after usage, not in real time. Many municipalities bill quarterly or bi-monthly, meaning the bill available at the time of closing usually does not reflect the seller’s full period of ownership. For Example, if a closing takes place on January 30th, the most recent bill may have come out on January 7th and that bill could cover a time period from October 1st through December 31st. While this bill will be paid at the time of closing, there is still a gap of the Seller’s water usage (from January 1st to 30th) that needs to be paid by the seller, albeit the amount owed is unknown. In this example, the next water bill will likely not be mailed out until April, and that bill will cover from January 1st to March 31st and will be sent to the new Buyer.
Because unpaid water charges often attach to the property itself (not the individual), any outstanding balance and/or water usage by the seller can become the buyer’s responsibility if not addressed at closing. Handling the water bill properly protects:
Buyers, from inheriting the seller’s unpaid usage
Sellers, from being overcharged or delayed after closing
Lenders and title insurers, from future title issues
What Is a Water Escrow?
A water escrow is a temporary holdback of funds from the seller’s proceeds at closing. This escrow ensures there is money available to pay the seller’s portion of the water bill once the final bill is issued.
How a Water Escrow Works
The seller and buyer agree in the Purchase Agreement to hold an escrow at the time of closing for the seller’s final water usage
The title company holds an estimated amount (often based on prior bills and/or the purchase agreement)
When the municipality issues the final bill:
The seller’s portion is paid from the escrow
Any remaining balance is refunded to the seller
If the bill exceeds the escrow, the seller is responsible for the difference
This process allows the transaction to close on time without waiting weeks or months for the municipality to issue a final statement.
What is a Final Water Bill - and What If There Isn’t One?
Traditionally a Final Water Bill is a special bill that the seller orders from the water department. This Final Water Bill only covers the time period from the last bill through the date of closing or seller’s final occupancy (if they kept occupancy after the closing). A seller will need to call their Water Department to request this special bill and it is usually delivered within a few days. Unfortunately, not all Water Departments offer this service to provide a final water bill.
If a final water bill cannot be obtained, the next issued water bill can be prorated to fairly determine the seller’s responsibility. Proration divides the bill based on time, allocating charges according to how long the seller and buyer each owned the property during the billing period.
Example: Prorating a Water Bill
Scenario:
Water billing period: January 1 – March 31 (90 days)
Closing date: February 15
Total water bill received after closing: $300
Step 1: Determine Seller’s Days of Ownership
January 1 – February 15 = 46 days
Step 2: Calculate Daily Cost
$300 ÷ 90 days = $3.33 per day
Step 3: Calculate Seller’s Share
46 days × $3.33 = $153.18
Result:
Seller owes: $153.18
Buyer owes: $146.82
The seller’s portion would be paid from the water escrow (or reimbursed by the seller if no escrow was held).
What do Buyers and Sellers Need to do After Closing to Ensure Water Bills are Handled Correctly?
The Seller must call the Water Department to request a final water bill and then provide this bill to the title company. This usually works best when the seller calls the water department the day of closing to schedule this reading/ bill.
Alternatively, the Buyer’s first water bill may arrive in the mail and if it shows charges on it from when the Seller occupied the property, they should provide this bill to the Title Company holding the seller’s water escrow (usually the seller’s title company) so that those charges may be paid out of the escrow.
It is important that the seller provide a Final Water Bill or the next available bill to the Title Company so that these charges may be paid out of the escrow and the remainder of the escrow funds can be returned to the seller.
If no bills are provided to the Title Company, and the Title Company is unable to obtain an appropriate bill, it may result in all of the seller’s water escrow funds being paid directly to the buyer to avoid the buyer being penalized for the seller’s non performance.
Final Takeaway
Final water bills are a small but important part of a smooth real estate closing. Whether through a final water bill or a post-closing proration, the goal is simple: each party pays only for the water they actually used.
If you have questions about how water bills are handled in your transaction, your title company is the best resource to guide you through the process and protect everyone involved.
For Water Escrow related questions, call Legacy Title’s mainline at 248-913-2266 or email our escrow department at escrow@legacyclosings.com .