What is proration at a real estate closing?
Proration is the fair splitting of recurring costs — mainly property taxes, and sometimes HOA dues or prepaid items — between the buyer and seller based on how much of the period each one owns the home. The settlement statement shows each party's share and the resulting credit or debit at closing.
How are property taxes prorated in a US closing?
The closing agent calculates a daily tax amount (annual tax divided by days in the tax period) and allocates it by ownership days. Because many jurisdictions bill taxes in arrears, the seller typically credits the buyer for the seller's ownership days, since the buyer will pay the full bill when it comes due.
What is the difference between paying taxes in arrears and in advance?
Some jurisdictions bill property taxes in arrears (the bill covers a period that already passed), so at closing the seller owes the buyer for the seller's time. Others bill in advance (prepaid), so the buyer reimburses the seller for the buyer's remaining time. Getting the direction right is essential to a correct settlement statement.
Who handles proration calculations at closing?
The closing/settlement agent, title company, or closing attorney prepares the settlement statement (Closing Disclosure) and computes all prorations. You should review the figures before signing, because errors in the tax period, daily rate, or direction of the credit can shift hundreds of dollars between buyer and seller.