Prorations

Definition

The split of prepaid and unpaid bills between seller and buyer at closing.

Why It Matters

Rent, utilities, property taxes and insurance rarely land on the closing date, so somebody has paid for days the other party will own. Prorations settle that arithmetic, and they are one of the last numbers to move: a closing that slips a week moves every one of them. They are also where a small surprise shows up as real cash, because the party who prepaid is asking to be repaid at the table rather than invoicing later.

In numbers: A closing on the 20th of a month with $6,500 rent already paid puts about $2,167 of that month back to the seller, and a $9,600 annual property tax bill unpaid at closing sends roughly $5,300 the other way.