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The Variables of Real Estate Proration

Know the Variables or Risk an Incorrect Result

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In a closing transaction, the final settlement statement dollar amounts will be determined in part by proration of various items. These items might include taxes, insurance, homeowner dues, maintenance fees, mortgage interest and others.

Is the item paid in advance or arrears?- Items like insurance premiums and maintenance fees are usually paid in advance. However, taxes and interest are normally paid in arrears. Amounts that have already been paid by a seller for services or items after closing would normally be credited back to the seller based on the closing date. Items that have not yet been paid, but are owed for the period before closing, would need to be charged to the seller.

Will We Prorate "To" or "Through" the date of closing? - The purchase contract should give us this information. If "to", then the buyer is paying prorated costs for the date of closing. The seller is paying if it is "through."

Are we using a "banker's" or a "calendar" year? -

  • A banker's year uses 360 days as a 12 month year with 30 days each.
  • A calendar year is either 365 or 366 days.
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