What does proration refer to in a real estate transaction?

Proration in a real estate transaction refers to the allocation of shared expenses, which is essential in ensuring that costs are divided fairly between parties involved in a property transaction. This typically involves expenses that occur over a specific period, such as property taxes, utilities, or homeowners association fees.

When a property is sold, these costs are prorated so that the seller is responsible for the portion of the time they owned the property before the sale closes, and the buyer takes on the costs for the period following the closing. This ensures that neither party pays for the entire amount of shared expenses when they only benefited for part of that time.

A clear understanding of proration is crucial for real estate professionals, as it affects the financial outcomes for both buyers and sellers. Through accurate calculations, each party can receive a fair adjustment that reflects their actual usage or responsibility for those expenses during the transaction timeline.