What does 'proration' mean in a real estate closing?

PRORATION divides shared ongoing costs between buyer and seller at closing based on the date of ownership transfer. Common items prorated: PROPERTY TAXES (if paid in arrears — seller owes for the days they owned the property in the current tax period); PREPAID RENT (if income property — buyer gets credit for rent already collected for days buyer will own); HOA FEES; INSURANCE PREMIUMS (if assumed).

How it works: If taxes are $3,600/year and closing is on day 200 of the year: Seller owes 200/365 × $3,600 = $1,973 — this is typically a credit to the buyer (buyer receives cash at closing) or deducted from seller proceeds; the buyer then pays the full tax bill when due. Correct proration is one of the most tested calculation areas on real estate exams.