YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
QUESTION:
I have a question on prorations. I am the Buyer and my transaction is closing on May 31. When you prorate the tenant’s rent, do you prorate on 30 days or 31 days? Do you count that 31st day? The escrow handling the transaction says that all prorations are based on a 30 day month, 360 day year.
ANSWER:
That is a good question. Yes, the standard proration is on a 30 day month/360 day year, no matter if there are 28 days or 31 days in a month. That evens out the days for certain proration items like property taxes, which is calculated across many months. Some of which may have 28 days and others 30 or 31, so we average it out.
However, there can be certain exceptions. If the closing happens on the 28th or 31st day of the month, clients can ask that we prorate the rent(s) based on actual day basis. We will draw up instructions to reflect this non-standard proration. Here is an example: if the rent is $1,200 per month from 5/1 to 5/31, in a non-standard proration that rent would be $1,200 divided by 31 days, equal to $38.71 per day as compared to $40 per day if divided by 30 days in a standard proration. Not much of a difference, is it, but if there is more than one rent to prorate, or the rents are of higher amounts, you can imagine that it could make a big difference. And yes, that 31st day would be counted, no matter what type of proration is used.
EDUCATIONAL MOMENT:
In commercial buildings and apartment unit transactions where there are a lot of rents to take into consideration, the rent/lease prorations could come out to be a considerable amount of credit which the Seller gives to the Buyer. This credit will affect the amount of funds the Buyer has to bring in to close escrow. In such transactions, clients should confirm at the beginning that the escrow officer is calculating on actual days for the closing month, from the start of the rental month to the last day. If it is not written into the Purchase and Sale Agreement, then escrow should be making it clear in the escrow instructions.
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~ Video of the Month ~
Remember the first days of Zoom calls?
Here is a flashback and guess what, it still applies today!
Caution – cute dogs involved!
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~ Quote of the Month ~
~Concentrate every minute on doing what’s in front of you.~
Reflections from Marcus Aurelius, Emperor of the Roman Empire, in his “Meditations”
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My YouTube Offering for the Month
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You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
Advance Disclosure:
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
Info @ VivaEscrow.com