National Real Estate Exam (PSI)Real Estate CalculationsMedium
An annual HOA fee of $1,200 is unpaid for the year. Closing occurs on June 1, and the buyer will be responsible for paying the entire year's fee later. Using a 30-day month and 360-day year, how much credit does the buyer receive at closing for the seller's share of the unpaid fee?
- A$700
- B$400
- C$600
- D$500
Show answer & explanationAnswer & explanation
Correct answer: D. $500
The seller owned the property from January 1 through May 31, which is 5 months or 150 days (30-day months). The seller's share is $1,200 × (150/360) = $500. Since the buyer will pay the full fee later, the seller owes the buyer this $500 as a credit at closing.
Why the other options are wrong
- A. This assumes an incorrect proration period longer than 5 months.
- B. This undercounts the seller's ownership period.
- C. This overcounts the seller's days of ownership.
Proration of Unpaid Expenses
When a recurring expense is unpaid at closing, the seller's portion (days owned) is credited to the buyer since the buyer will later pay the entire bill.
- Unpaid item: seller owes buyer for seller's days of ownership
- Prepaid item: buyer owes seller for buyer's days of ownership
- Use 30-day month, 360-day year for standard proration
Memory trick: Unpaid bill? Seller pays their share to the buyer's pocket.