What is the division of expenses and income between the buyer and seller called?

The division of expenses and income between the buyer and seller is known as proration. This term specifically refers to the process of splitting costs, such as property taxes, insurance, and other recurring expenses, that affect both parties in a real estate transaction. During the closing process, proration ensures that each party pays their fair share of these expenses up to the date of the transaction.

For example, if property taxes are due annually and the sale closes halfway through the year, proration will calculate how much of the property tax is owed by the seller for the time they owned the property and how much is owed by the buyer moving forward. This ensures an equitable distribution of charges related to the property and protects both parties' financial interests.

Understanding proration is essential for real estate professionals, as it directly impacts the final settlement statement and how much money each party will need to bring to the closing table.