CAS 45-Hour Real Estate Principles Course Practice Test 2026 - Free Real Estate Practice Questions and Study Guide

In real estate transactions, prorated closing costs including property taxes and insurance are calculated based on the seller's payments that cover a period extending into the closing date. In this scenario, the Simpsons are preparing to purchase a home, and part of the closing costs involves determining how much they owe for these prepaid expenses.

The correct answer reflects an accurate calculation of how those costs are prorated. Proration means that expenses are allocated based on the amount of time that each party owns the property during the billing cycle. For instance, if the Martins paid property taxes upfront for the year and the Sims close before that year is over, the Sims will owe the Martins for the portion of taxes that have been pre-paid but cover time subsequent to the sale.

This ensures that the seller is compensated for the time they owned the property after making the payment and allows the buyer to take over payments that align with their ownership. The calculation of $1,997.62 likely takes into account the specific period in which the property taxes and insurance will be applicable post-closing, making it the most accurate representation of the prorated amount owed by the Simpsons.

This consideration of prorated costs is a crucial aspect of closing a real estate transaction, as it protects both the buyer and