What do prorations refer to in a real estate transaction?

Prorations in a real estate transaction specifically relate to the division of expenses and income between the buyer and seller. This process ensures that costs associated with the property, such as property taxes, utilities, and homeowner association fees, are fairly allocated based on the time each party owns the property during the billing period. For example, if a property tax bill is due July 1 and the closing occurs on June 30, the seller would be responsible for the tax until the date of closing, while the buyer assumes responsibility from that date forward.

This practice is important because it prevents either party from unfairly bearing the full burden of expenses that apply to a period when they do not fully own the property. By prorating these costs, both parties can agree on an equitable resolution, thereby facilitating a smoother transaction at closing.