What does "proration" refer to in a real estate transaction?

Proration in a real estate transaction pertains to the division of expenses and income between the buyer and seller at closing. This process ensures that both parties fairly share the costs associated with the property for the time they each own it. For example, property taxes, homeowner association fees, and utility bills may be prorated to reflect the time each party owns the property within the billing cycle.

At closing, any expenses incurred prior to the closing date are typically calculated and adjusted accordingly. This ensures the seller pays for the portion of the property expenses that belong to the time period before the closing date, while the buyer will take responsibility for these costs moving forward. Therefore, proration is crucial for ensuring fairness and accuracy in the financial aspects of the transaction, creating a clear understanding of who is responsible for what expenses during the ownership transition.

The other options pertain to different aspects of the real estate transaction. Finalizing the sale involves procedures that occur after proration is calculated, while adjustments of property taxes or closing fees are specific circumstances that may not encompass the broader definition of proration itself.