What happens to prorated expenses as determined in a real estate sale?

In a real estate transaction, prorated expenses are essential for accurately reflecting the costs incurred by both the buyer and the seller during the period of ownership. The process involves calculating shared expenses like property taxes, homeowners' association fees, or utilities based on the closing date of the sale.

When prorated expenses are determined, they are represented on the settlement statement through credits and debits. For example, if a property tax bill is due after the closing date, the seller will be credited for the portion of the year they owned the property, while the buyer will be debited for the amount that covers their ownership period. This ensures that both parties only pay for the portion of the expenses that corresponds to their time of ownership, promoting fairness in the transaction.

This accurate adjustment is crucial as it ensures that each party bears their appropriate share of the expenses, preventing disputes and misunderstandings regarding financial responsibilities post-sale.