Determining Ownership Days
Determining ownership days involves calculating the number of days each party (buyer and seller) owned the property during the relevant period (usually a year). This calculation is crucial for accurate proration.
The number of days each party owned the property directly affects their share of expenses or income. Typically, the seller is responsible for the days they owned the property *before* the closing date, and the buyer is responsible for the days *on or after* the closing date. Accurate calculation of these days is essential for fair proration.
If a property closes on July 16th, the seller owned the property from January 1st to July 15th. The number of days the seller owned the property is 31 (Jan) + 28 (Feb) + 31 (Mar) + 30 (Apr) + 31 (May) + 30 (June) + 15 (July) = 196 days.
Remember to include the closing date when calculating the buyer's days of ownership. Be careful with leap years and the number of days in each month.
Related Terms
Practice Questions
Related Concepts
Net Operating Income (NOI) is the revenue a property generates after deducting all operating expenses.
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.