PSI Virginia Real Estate Practice Exam

What does the term "prorated items" refer to at closing?

1. Final expenses paid by the seller only

2. The portion of fees due from each party at closing

3. Full payment of taxes by the buyer only

4. Cost adjustments made post-closing

The correct answer is: The portion of fees due from each party at closing

The term "prorated items" at closing refers to the division of certain fees or expenses between the buyer and the seller, ensuring that each party pays their fair share based on the time each has had ownership or responsibility. This is particularly relevant for items like property taxes, utilities, or homeowners association fees, which may be assessed on a yearly basis, but the sale may occur at any point during that year. Proration allows both parties to settle their accounts accurately at the time of closing, adjusting for the number of days each party has been responsible for the charges. For example, if a seller has owned the property for part of a month before closing, that seller would be responsible for only that portion of the month’s expenses, while the buyer would take on responsibility for the remaining days of that month and beyond. This allocation ensures that both parties are treated fairly and that the buyer does not inherit any pre-paid or unaccounted expenses that exceed their actual usage of the property. Thus, the correct answer reflects the system of division meant to create a fair financial transaction at closing.