What are prepaid items in a settlement?

Prepaid items in a settlement refer to those payments made in advance by the seller for which the buyer must later reimburse the seller at closing. This is common in real estate transactions, where certain expenses, such as property taxes or homeowners' association fees, may have been paid in advance by the seller. During the closing process, the buyer typically assumes responsibility for these prepaid items, ensuring that the seller is compensated for amounts they have already paid but that cover the period after the transaction has occurred.

Understanding this concept is critical in real estate transactions, as it helps clarify the financial responsibilities between buyers and sellers during settlement. The other options do not accurately represent prepaid items: items the buyer has already paid for pertain to the buyer's expenses rather than the seller’s, expenses incurred after closing are not part of the settlement process, and future payments that will be billed to the buyer do not relate to the concept of prepaid items since they have not yet been paid.