Math Walkthrough
Real Estate Proration: Step-by-Step Walkthrough
Proration divides a recurring expense (like property taxes or HOA fees) between buyer and seller based on the closing date. Two methods dominate: 365-day method (precise) and 360-day banker's method (some states still use this). The math is just (annual amount ÷ days in year) × seller's days.
The Two Things You Need to Know
1) Daily amount = Annual amount ÷ Days in year (365 or 360 depending on method).
2) Seller's days = days from start of period through closing date (or excluding closing day in some jurisdictions). Seller's share = daily amount × seller's days.
Three Worked Examples (365-Day Method)
Question 1
Annual property tax: $5,475. Closing date: April 15. Seller is responsible through closing. What's the seller's prorated share (365-day method)?
Daily tax: $5,475 ÷ 365 = $15.00. Days from January 1 through April 15 = 105. Seller's share: 105 × $15.00 = $1,575.00.
Question 2
Annual HOA: $2,400, paid quarterly (Jan 1, Apr 1, Jul 1, Oct 1). Seller paid $600 on July 1 covering Jul–Sep. Closing is August 15. How much of the July payment does the seller deserve as a credit from the buyer?
Seller used Jul 1 through Aug 15 = 46 days. Total period covered by payment = 92 days (Jul–Sep). Seller's share of $600: 46 ÷ 92 = 50%. Buyer credits seller for unused: $600 − $300 = $300.
Question 3
Annual taxes paid in arrears (Dec 31). Annual amount $3,650. Closing March 31. What's the seller's debit at closing?
Daily: $3,650 ÷ 365 = $10. Days from Jan 1 through Mar 31 = 90. Seller owes 90 days × $10 = $900 (debit to seller, credit to buyer).
Paid in Arrears vs. Paid in Advance
Paid in arrears (most property taxes): seller owes for days they occupied — DEBIT to seller, CREDIT to buyer at closing
Paid in advance (some HOA, insurance): seller already paid for days they didn't use — CREDIT to seller, DEBIT to buyer at closing
Always identify the payment status before calculating
Closing day responsibility varies by state — confirm whether seller's day or buyer's day
Drill Proration Math
Practice 15+ proration problems on the math page.
Related Math Pages
Proration FAQ
365-day or 360-day method?
Depends on jurisdiction and contract. The 365-day method is more common today. The 360-day banker's method (12 months × 30 days) is older but still seen on some exams.
Who's responsible for the closing day?
Varies by state. Some states make seller responsible through closing day; others make buyer responsible from closing day. Read the question carefully.
What's a debit vs credit at closing?
Debit = amount owed (against the party). Credit = amount due (to the party). Prorations create matching debit/credit entries between buyer and seller.