What is proration, and why is it important at closing?

• A. Proration schedules the mortgage payment for the first year.
• B. Proration splits ongoing expenses (taxes, HOA, rents) between buyer and seller as of the closing date.
• C. Proration allocates title insurance premium between buyer and seller.
• D. Proration determines the agent's commission split.

Answer: (B)

Proration is dividing ongoing costs that accumulate over time between the buyer and seller based on the closing date. This matters at closing because each party should pay only for the time they actually own or use the property. Items that are routinely prorated include property taxes, HOA dues, and rents if the property is a rental.

The basic idea is days. If the closing happens in the middle of a billing period, the amount is split so the days before closing are handled by the seller and the days after closing are handled by the buyer. The settlement statement records this with adjustments so the parties aren’t paying for time they didn’t own.

Proration focuses on these recurring expenses and how they accrue, not on scheduling a mortgage payment for the first year, nor on dividing title insurance or the agent’s commission, which are handled separately.