Alabama Real Estate Practice Exam

Why are prorations important in real estate closings?

1. They help in negotiating the mortgage rate

2. They adjust the final price based on pre-existing conditions

3. They allocate expenses between the buyer and seller based on the closing date

4. They are required for the mortgage lender's final approval

The correct answer is: They allocate expenses between the buyer and seller based on the closing date

Prorations play a crucial role in determining the financial responsibility for expenses between the buyer and seller in a real estate closing. This is because prorations take into account the period of time in which the transaction is taking place, dividing expenses such as property taxes, insurance, and utilities between the buyer and seller based on the closing date. This ensures that both parties are fairly responsible for any expenses incurred during the period in which the property was transferred. Option A is incorrect as prorations are not related to negotiating mortgage rates. Option B is incorrect as prorations do not adjust the final price, but rather assign responsibility for expenses. Option D is incorrect as prorations are not required for the mortgage lender's approval, but are essential for determining financial responsibility between buyer and seller.