Prorations are the division of operating income and expenses between buyer and seller at close, based on the closing date. Typical items: rent, property tax, utilities, insurance premiums.
At closing, the escrow officer calculates prorations: seller gets credit for rent collected covering post-close days, pays property tax for pre-close days, etc. Prorations ensure each party only bears costs and receives income for their portion of the month or fiscal period.
LA multifamily prorations are standard. Common proration complications: tenants paying rent for partial months, LAHD fees due on specific dates, insurance premiums paid annually, property tax reassessments pending. Review the settlement statement carefully.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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