Proration
The division of ongoing property expenses (taxes, HOA dues, rents) between buyer and seller at closing based on their respective days of ownership.
Full Definition
Proration is the process of fairly dividing ongoing property expenses and income between the buyer and seller at closing, based on the number of days each party owns the property during a given period. Commonly prorated items include property taxes, HOA dues, prepaid rent (if the property is tenant-occupied), and homeowner's association fees. The daily rate is calculated as the annual amount divided by 365 (or 360 in some markets using the banker's year method). The seller is responsible for expenses through the day of closing; the buyer is responsible from the day after closing. On a Closing Disclosure, the seller's portion appears as a debit; the buyer's portion (if receiving a credit for taxes already paid) appears as a credit.
Real-World Example
Property taxes of $4,800/year. Closing is on May 15 (day 135 of the year). Daily rate = $4,800 ÷ 365 = $13.15. Seller owes 135 days × $13.15 = $1,775 credit to the buyer.
How Proration Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Three steps: find daily rate (Annual ÷ 365), count the seller's days (Jan 1 to closing date), multiply. The seller credits the buyer for taxes owed but not yet paid. Closing day is typically charged to the seller.
Related Terms
More Closing & Settlement Terms
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