Some of us of a certain age were taught how to do math computations without a calculator. And some escrow officers / closers of a certain age learned how to figure prorations by using a calculator and manually entering the figures on closing statement by typing them on that ancient relic, the typewriter. You know, sometimes it's good to know how to do things the old fashioned way because I think it gives you a good basic understanding of the task at hand.
I suspect that many closers today are confused by prorations. I've run across a few recently who couldn't compute a HUD-1, one of whom has been in the escrow business for 23 years.
Basically, prorations are a credit and debit system. If the buyer will own the property during the period a seller has prepaid something, the buyer owes a credit to the seller for that time period. Credit seller, debit buyer. Vice versa, if the seller has not yet paid a bill that the buyer will eventually pay, the seller should be debited for the period of time the seller owned the property during those accruing charges. Debit seller, credit buyer.
For example, say the seller has paid a monthly homeowner association fee on October 1 that pays for the month of October. Escrow closes on October 20th. The seller is entitled to a credit (refund) from the buyer for the period of time covering October 20th to October 31. The buyer will be debited for that amount. If the HOA fee is $100, divide that amount by 31 days. The seller will receive $3.23 per day times 12 days or $38.76 as a credit and the buyer will be charged $38.76.
See, prorations aren't that difficult!
Speaking of math, yesterday I saw an article published by Consumer Reports. It was about selling a home and paying a 3% credit to the buyer. The article said the home was priced at $300,000, and with a 3% credit, the seller would lose $12,000. Math isn't all that hard, ya think?