What is a sources and uses schedule and why is it critical in closing a real estate deal?

• A. Sources show where funds come from (debt, equity, seller credits); uses show how funds are allocated (purchase price, closing costs, capex, reserves). It ensures capital adequacy and alignment of payments.
• B. Sources show entry of rents.
• C. SOURCES schedule is optional and rarely used.
• D. Sources and uses schedule only affects taxes.

Answer: (A)

A sources and uses schedule shows where all the money for a real estate closing comes from and where every dollar will be spent. On the sources side you list all funds and contributors—senior debt, mezzanine debt, equity, sponsor cash, seller credits, grants, and any other financing or contributions. On the uses side you itemize how those funds will be allocated—purchase price, closing costs, loan fees, capital expenditures, tenant improvements, reserves, and other project costs. This schedule is critical because it proves there’s enough capital to fund the deal and that every dollar is accounted for in a specific use. It aligns the timing of cash inflows with outflows, helps ensure capital adequacy, and gives lenders and sponsors a clear view of the capital stack and how the financing supports the transaction. It also guides negotiations and closing logistics—such as whether seller credits can cover certain costs or if additional equity is required—so the deal can close smoothly. It’s not about rents, and it isn’t optional or solely about taxes; its main purpose is to coordinate all funds to ensure a feasible, well-structured closing.