Prorating Real Estate

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Prorating is a process used in real estate transactions to evenly divide and apportion expenses or payments for a given period between two or more parties. Understanding this concept is important for anyone who participates in real estate transactions.

What is Prorating?

In real estate cases, prorating depends on the payment or expense being divided and the span of time in which the expense or payment occurs. It is common for mortgages, taxes and other payments to be prorated when someone moves in or out of a property over the course of a month or year.

Examples of Prorated Payments/Expenses

  • Property Tax: If a homebuyer is scheduled to move in on the 15th of the month and the tax bill is due on the 1st, the seller and buyer will divide the amount due based on the amount of time each party has owned the home.
  • Mortgage: If a buyer purchases a home after the first of the month, the seller may be asked to prorate the payment for the amount of time they owned the property.
  • Start/End Date Rent:If a tenant starts renting a property during the middle of the month, the tenant pays rent for the days used and the remaining days in the month. Prorating in this situatation is also used to determine the amount of rent due based on the day the tenant moves out of the property.

Conclusion

In reality, prorating comes down to the perception of fairness. As such, it’s important to have a working understanding of this process whenever dealing with real estate transactions. Prorating provides a means to divide costs or payments for a given period of time in an even and fair way. Ultimately, it’s a simple concept when dealing with real estate transactions.