How to Compute Prorations

By
Real Estate Agent with Lyon Real Estate BRE #00697006

Some of us of a certain age were taught how to do math computations without a calculator. And some escrow officers / closers of a certain age learned how to figure prorations by using a calculator and manually entering the figures on closing statement by typing them on that ancient relic, the typewriter. You know, sometimes it's good to know how to do things the old fashioned way because I think it gives you a good basic understanding of the task at hand.

I suspect that many closers today are confused by prorations. I've run across a few recently who couldn't compute a HUD-1, one of whom has been in the escrow business for 23 years. 

Basically, prorations are a credit and debit system. If the buyer will own the property during the period a seller has prepaid something, the buyer owes a credit to the seller for that time period. Credit seller, debit buyer. Vice versa, if the seller has not yet paid a bill that the buyer will eventually pay, the seller should be debited for the period of time the seller owned the property during those accruing charges. Debit seller, credit buyer.

For example, say the seller has paid a monthly homeowner association fee on October 1 that pays for the month of October. Escrow closes on October 20th. The seller is entitled to a credit (refund) from the buyer for the period of time covering October 20th to October 31. The buyer will be debited for that amount. If the HOA fee is $100, divide that amount by 31 days. The seller will receive $3.23 per day times 12 days or $38.76 as a credit and the buyer will be charged $38.76.

See, prorations aren't that difficult!

Speaking of math, yesterday I saw an article published by Consumer Reports. It was about selling a home and paying a 3% credit to the buyer. The article said the home was priced at $300,000, and with a 3% credit, the seller would lose $12,000. Math isn't all that hard, ya think?

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Elizabeth Weintraub is an author, home buying expert for About.com, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area with an emphasis on Elk Grove. Call Elizabeth Weintraub at 916.233.6759. Put 40 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. BRE License # 00697006.

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Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

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Broker-Associate at Lyon Real Estate, midtown Sacramento office. Selling since 1974. Homebuying expert at About.com. Best short sale agent in Sacramento. Elizabeth sells homes from Galt to Lincoln.
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Author Bio: Elizabeth Weintraub is a Sacramento real estate broker, author, home buying expert for About.com, a Land Park resident, who specializes not only in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento but sells extensively from Elk Grove to Lincoln. Weintraub is prominently known as the #1 Sacramento Short Sale agent throughout the Sacramento four-county area. Call Elizabeth Weintraub at 916.233.6759. Put 40 years of real estate experience to work for you.