Washington State Real Estate Practice Exam

What is proration in the context of real estate transactions?

1. Adjusting the final sale price

2. Dividing financial responsibilities between buyer and seller at closing

3. Calculating commissions for brokers

4. Reviewing financial disclosures

The correct answer is: Dividing financial responsibilities between buyer and seller at closing

Proration in real estate transactions refers to the process of dividing financial responsibilities between the buyer and seller at the time of closing. This ensures that expenses related to the property, such as taxes, utilities, or homeowners' association fees, are allocated fairly based on the time each party has owned or occupied the property during the billing period. For instance, if property taxes are due but the sale closes in the middle of the tax period, the seller would be responsible for the taxes incurred up to the closing date, while the buyer would take on the responsibility for the period following the closing. This division is essential to prevent either party from unfairly bearing the cost of the entire billing period. Each of the other options pertains to different aspects of real estate transactions. Adjusting the final sale price relates more typically to negotiations or financial assessments but does not directly relate to the division of ongoing costs and responsibilities, while calculating commissions for brokers concerns the fees paid for professional services rendered rather than shared liabilities. Reviewing financial disclosures involves ensuring that all financial aspects of the property are clear, but again, this does not specifically deal with the proration of expenses. Thus, the correct understanding of proration is vital for equitable financial management in real estate transactions.