California Real Estate Practice Exam

What is the apportionment of tax payments at closing known as?

1. Proration

2. Escrow

3. Adjustment

4. Closing cost

The correct answer is: Proration

The apportionment of tax payments at closing is known as proration. Proration is the process of dividing certain closing costs such as property taxes, homeowners insurance, and interest on a loan between the buyer and seller. This is done based on the time each party owned the property during the tax year. This can be confusing because escrow and closing cost are also terms used in real estate transactions, but they refer to different things. Escrow is an account where money is held to pay certain bills, such as property taxes, on behalf of the buyer. Closing cost refers to the fees and expenses paid at the closing of a real estate transaction. Adjustment is not the correct answer because it does not specifically refer to the apportionment of tax payments. Therefore, the best answer is A Proration.