Difficulty: Medium

Average Score: 64%

Which of the following items would be prorated at closing with the credit going to the seller

Rationale

Prepaid property taxes would be prorated at closing with the credit going to the seller.

Prepaid property taxes are typically adjusted at closing since they benefit the buyer for the period following the sale. Therefore, the seller is credited for the amount they've already paid, reflecting their entitlement to the portion of taxes covering the time they owned the property.

A (accrued interest on an assumed mortgage) YOUR ANSWER

Accrued interest on an assumed mortgage is generally paid by the buyer at closing since it represents interest that has accumulated but has not yet been paid. This cost typically does not lead to a credit for the seller, as it is a liability the buyer must assume moving forward.

B (prepaid property taxes) CORRECT

Prepaid property taxes are funds that the seller has already paid for a period extending beyond the closing date. At closing, the seller receives a credit for these taxes, as the buyer will assume responsibility for the property and benefit from those taxes in the future.

C (earnest money) YOUR ANSWER

Earnest money is a deposit made by the buyer to demonstrate serious intent to purchase the property. This amount is not prorated at closing, as it is applied to the purchase price and does not represent an ongoing expense or credit that pertains to the seller's prior costs.

D (unearned rent collected in advance) YOUR ANSWER

Unearned rent collected in advance is typically a liability for the seller as it represents rental income for a period that extends beyond the closing date. This amount does not provide a credit to the seller at closing, as it is the buyer who will benefit from the rent collected for future occupancy.

Conclusion

In real estate transactions, accurate prorations at closing ensure that both the seller and buyer are fairly compensated for expenses incurred. Prepaid property taxes are credited back to the seller, as they have already covered costs that benefit the buyer post-closing. In contrast, other options like accrued interest, earnest money, and unearned rent do not result in credits for the seller, highlighting the importance of understanding these financial elements during the closing process.

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