Wisconsin Real Estate Sales Practice Exam

According to real estate practices, when are any income, taxes, or expenses prorated to the seller?

1. The date of closing

2. The day prior to closing

3. The day of the offer

4. The date of the home inspection

The correct answer is: The day prior to closing

Prorating income, taxes, or expenses occurs to ensure that these financial responsibilities are fairly divided between the buyer and seller for the period that they are responsible for them. In real estate transactions, prorations are commonly calculated up until the day before closing. This is because the seller will be responsible for any income, taxes, or expenses incurred before closing, while the buyer takes over these responsibilities on the day of closing. Prorating them the day prior to closing allows for an accurate and fair adjustment of financial responsibilities. This ensures that both parties are only accountable for their respective time periods. It’s a standard practice in real estate to finalize these calculations just before the closing to reflect the seller's ownership duration accurately. Offering the day of the offer or the date of the home inspection does not make practical sense for prorating, as those dates do not mark the change of ownership or responsibility for costs associated with the property. Therefore, the most correct timing for prorating income, taxes, or expenses is the day before closing.