What is proration in real estate transactions?

Proration in real estate transactions refers to the division of expenses between the buyer and seller at the time of closing. This process ensures that costs such as property taxes, utilities, and homeowner association fees are fairly allocated based on the period of ownership. For example, if a property is sold in the middle of a billing cycle, proration allows for the amount owed for that billing cycle to be divided so that the buyer only pays for the portion they will be using after the purchase, while the seller pays for the portion they used prior to the sale. This practice is essential for accurately reflecting the financial responsibilities of both parties involved in a transaction, ensuring fairness and clarity in the closing process.