Breaking Down Proration
Welcome to episode 3 on proration of The #AskDonaldson Show, where we answer your questions about real estate in order to help you pass the real estate exam and succeed in furthering your career. Whether you are studying for the National portion, looking to get licensed in Louisiana, or obtaining your license in Mississippi; if you have a question – we have the answer. Our goal is your success!
In this episode we answer the question of – calculating proration in a real estate transaction. Of course, we understand when it comes to financial math problems that this can cause some stress to real estate agents, so we have created a simple 3 Step process for solving the problem of proration.
Donaldson 3 Steps to Solving Proration:
- Count Days
- Daily Rate
- Days x Daily Rate
So, let’s break this down a little more. First, in counting the number of days, remember that as real estate professionals we use the banker’s calendar. In the financial world, regardless of the month – 30 days are used, which equates to 360 days in banker’s calendar. Armed with this knowledge we can now figure out the days that need to be prorated from the closing date – STEP 1.
Next, we need to figure out STEP 2, the daily rate. This amount can be many different things: taxes, insurance, association dues, lease payments, etc… Therefore, whatever value is being prorated, we take that amount and divide by 360 to give us our Daily Rate.
Now that we have steps 1 and 2 identified we can conclude with STEP 3. Here we simply take the number of days and multiple by the daily rate. And that is proration!
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