Accrued items in a real estate transaction are expenses the seller has already used but hasn’t paid by closing day, most often property taxes, HOA dues, or water and sewer charges. Because the seller consumed the service and the bill will land after settlement, the unpaid share gets prorated: the seller is debited for their days of ownership, and the buyer receives a matching credit that reduces the cash needed to close. Getting this math right directly changes what each party brings to or walks away from the table.
How Proration Splits the Bill
Proration is how the closing agent divides a recurring property expense between seller and buyer based on who owned the home during each part of the billing cycle. The arithmetic is simple. Take the total cost for the period, divide by the number of days in the cycle to get a daily rate, then multiply by each party’s days of ownership.
For an accrued expense, the seller’s days become a debit against their proceeds and a credit that lowers the buyer’s cash-to-close. The buyer then pays the full bill when it arrives, using the credit to cover the seller’s share. Prepaid items work the opposite way: if the seller already paid past the closing date, the buyer reimburses the seller for the post-closing days. Both appear on the settlement statement, but they flow in opposite directions.
One detail worth confirming: who is treated as the owner on closing day itself. Local custom controls this, and it varies. In many areas the buyer owns the closing day and the seller’s share runs through the day before. Whatever convention applies has to stay consistent across every prorated line in the deal.
Some closing agents still use a 360-day “banker’s year” that treats every month as 30 days; most title companies now use a 365-day calendar. The purchase contract usually specifies the method, and the choice can shift the daily rate by a few cents, which matters over a full year of taxes.
What Typically Gets Prorated as Accrued
Property Taxes
Property taxes are the most common accrued item because they’re almost always paid in arrears. The seller benefits from municipal services during their months of ownership, but the bill comes due after that period ends. When the home sells mid-cycle, the seller is debited for their days and the buyer receives that amount as a credit toward the eventual bill.
Tax cycles vary. Some jurisdictions run on a calendar year, others on a July-to-June fiscal year, and some bill quarterly. The closing agent pulls the most recent tax bill to set the daily rate. If the current year’s rate hasn’t been finalized, the agent typically uses the prior year’s figure and the parties sign a reproration agreement to true things up once the actual bill is issued.
HOA Dues and Special Assessments
Homeowners association and condominium fees are usually billed monthly or quarterly, often due on the first day of the period. If the seller hasn’t paid the current installment by closing, the unpaid amount is prorated. If the seller already paid the full period, the item flips to prepaid and the buyer reimburses the post-closing portion.
Special assessments deserve extra attention. When an HOA or municipality levies a charge for a major project like road resurfacing or a new roof, the cost is often spread over years in installments. The purchase contract should spell out who picks up any remaining balance. Some contracts require the seller to pay off the entire assessment at closing; others only prorate the current installment. Leaving this ambiguous can saddle a buyer with thousands in charges they didn’t anticipate. If you’re buying, confirm the contract addresses outstanding special assessments explicitly rather than relying on a general proration clause.
Water and Sewer
Standard utilities like electricity and gas are usually handled outside proration through final meter readings and direct billing to the seller. Water and sewer are different in many areas because unpaid balances can become liens against the property itself, not just personal debts of the account holder. A buyer who misses an unpaid water bill can inherit the debt. A municipal lien search, typically costing between $30 and $125, flags these charges before closing.
Rent on Investment Properties
If the property has tenants, any rent the seller collected before closing gets prorated. When the seller received a full month’s rent but the sale closes mid-month, the seller owes the buyer the days after closing. Security deposits transfer to the buyer at closing, since the buyer inherits the obligation to return them when the tenancy ends.
Where Accrued Items Appear on the Closing Disclosure
Every proration is documented on the Closing Disclosure, the standardized five-page form required for most residential mortgage transactions. Accrued items appear under the heading “Adjustments for Items Unpaid by Seller.”
On the borrower’s side, these adjustments fall in Section L, which lists amounts already paid by or on behalf of the borrower; they include prorated city and county taxes, assessments, and any other charges the seller incurred but hasn’t paid. On the seller’s side, the same adjustments appear in Section N as amounts due from the seller, directly reducing seller proceeds. Each adjustment line has to show both the dollar amount and the period it covers, so the math is checkable.
Don’t confuse these with prepaid items, which sit under “Adjustments for Items Paid by Seller in Advance” in Section K (borrower) and Section M (seller) and flow the other direction.
Checking the Numbers Before You Sign
Closing agents run the calculations through settlement software, but automation doesn’t eliminate errors, and this is where buyers most often leave money on the table. The most common mistake is prorating taxes on last year’s rate when the current year’s assessment has jumped. If your area recently reassessed values, the difference can be hundreds of dollars.
Before signing, check three things against your purchase contract: the expense amount being prorated, the billing cycle dates, and whether the closing-day convention matches what you agreed to. If the daily rate looks off, divide the annual figure by 365 yourself. It takes thirty seconds and catches the errors that actually cost money.
The closing agent works from official documentation: the most recent tax bill, HOA statements, lien searches. If something is missing or outdated, ask for a current version before closing rather than assuming the figures are right. A post-closing correction means delays, re-disclosure paperwork, and the headache of collecting from someone who already has their proceeds in hand.
When the Final Bill Isn’t Known Yet
When the exact amount of a prorated expense can’t be pinned down at closing, the parties can sign a reproration agreement that lets the deal proceed on estimated figures and binds both sides to a later true-up. This comes up most often with property taxes when the current year’s rate hasn’t been finalized.
These agreements work in practice, but only if they’re actually enforceable. A vague understanding won’t hold up if the seller disputes the final number months later. The reproration clause should live in the purchase contract or a signed addendum and should specify which expenses are subject to adjustment, what triggers the recalculation, and the deadline for settling the difference. Without that language, you’re relying on goodwill from someone who no longer has a stake in the property.