Proration

Prorations ensure that the buyer and seller each pay their proportional share of expenses for the time they actually owned the property. Common items subject to proration include property taxes, HOA fees, and prepaid rents.

Texas-Specific Nuance & Citation

Under TREC Promulgated One to Four Family Residential Contract Section 13, property taxes, interest, maintenance fees, and rents are prorated through the closing date. In Texas, the seller is typically charged for the taxes up to and including the actual closing day itself.

The Trap

A common math trap on the Texas real estate exam is calculating prorations using either a 360-day year (banker’s year, where every month has 30 days) or a 365-day calendar year. Be sure to read the exam question carefully to determine which calendar model is requested.

Worked Example

A closing on a home in Abilene occurs on June 15th (the 166th day of a calendar year). The annual property taxes are $3,650 ($10 per day). Using a 365-day year, the seller owns the property for 166 days. The seller must credit the buyer $1,660 at closing, and the buyer will pay the full tax bill at the end of the year.