FBLA Real Estate Practice Exam

Proration at closing refers to the process of dividing costs between the buyer and seller of a property in a real estate transaction. This process ensures that each party pays their fair share of expenses associated with the property for the period in which they are responsible. Typical items that may be prorated include property taxes, utilities, homeowners association dues, and prepaid items like insurance or property taxes that one party has already paid for the period extending beyond the closing date.

For instance, if the property tax for the year is paid in advance, the seller will be credited for the time they owned the property during the year after the closing date, while the buyer will be responsible for the remaining portion of the year. This fair division ensures that neither party is unduly burdened with costs that they did not fully incur during their time of ownership, reflecting the principle that expenses should be allocated according to the time each party holds the responsibility.

Understanding proration is crucial for both buyers and sellers to ensure a smooth closing process and to avoid potential disputes over shared expenses.