PSI New Jersey Real Estate State Practice Exam

Which item would typically be prorated at closing with credit going to the seller?

1. Utilities paid in advance

2. Unearned rent collections in advance

3. Cable service fees

4. Homeowner's insurance premiums

The correct answer is: Unearned rent collections in advance

The correct choice is the unearned rent collections in advance, which is commonly prorated at closing with credit going to the seller. When a property is sold, any rent that has been collected for a period beyond the closing date is considered unearned for the new owner. Since the seller has received payment for this rent but will not be providing the rental space beyond the closing date, the amount collected is typically credited to the buyer during the settlement process. This ensures that the buyer does not assume an unfair burden and that the seller properly compensates for the income that they will not receive due to the sale. In contrast, utilities paid in advance might be prorated, but the allocation can vary based on the specific billing cycle and periods covered. Cable service fees are often not prorated at closing as they are generally more personal and may not involve advance payments relevant to the transfer of ownership. Homeowner's insurance premiums can also be a factor in closing costs, but they do not typically involve proration in the same manner as unearned rent.