Welcome to the largest Sequim Real Estate Blog with over 1,900 articles.
15 Aug 2015
How do you prorate propane at closing? When you buy a home, if the tank still has some propane in it, the seller is entitled to be reimbursed, and as a buyer you will be charged an amount on your closing statement to prorate the propane in the tank. But how does the escrow agent prorate propane? As a buyer, you should know how this works so you don’t get into an argument with a seller at the 11th hour.
You would think that it is super easy to prorate propane. Like anything else, you simply calculate how much the propane is worth per gallon, multiply by the number of gallons, and you reimburse the seller that amount. Unfortunately, it’s not that simple, and there’s a very logical reason.
If you call a propane distributor and ask how much propane is per gallon, you won’t be able to get a short answer. In fact, your conversation will probably be at least five minutes, and if you clarify the answers with more questions, you may be talking for 10 minutes before you understand. I know, because I’ve done this.
Here’s why it is hard to calculate how to prorate propane. Propane companies will quote a current retail price, which may be $2.39 per gallon. But that’s not necessarily what you will pay if you’re filling a residential propane tank. The price you pay will “depend.” It will depend on how big a propane tank you have, how often you refill it, and how long a contract you are willing to sign. There isn’t just one fee–there are multiple fee schedules based on all these variables. With three variables, that means there are nine possible fee schedules. And there’s another price they will quote. It is the first time customer price, which may be as low as $1.69 (in the current pricing model). But you’ll only see that price once. Now you know why it is so hard to prorate propane.
The standard real estate contract (Form 21) that is used in Washington states in para “h. Closing Costs and Prorations and Charges and Assessments,” the following:
Buyer shall pay for remaining fuel in the fuel tank, if, prior to closing, Seller obtains a written statement from the supplier as to the quantity and current price and provides such statement to the Closing Agent.
Everyone assumes that this language includes propane, and I won’t challenge that assumption, except to say that it is not 100% clear that propane is “fuel” in this contract. Let’s assume it is, and move on to the bigger ambiguity. The language refers to “current price,” but does not define the formula for determining what current price is. As you read above, current price can be any of multiple prices from various price schedules, and even those prices can vary from company to company. How to prorate propane is not so easy.
The local Sequim practice has been to reimburse the seller for the seller’s actual costs as calculated from his propane company. That makes sense from the seller’s perspective, but what if a buyer says, “Well, as a first time propane customer, I can get $1.69, instead of the seller’s cost (which may be $1.85 per gallon). Why should I pay the higher fee?”
Going with the seller’s actual cost is probably the most objective approach if you have to prorate propane, but there is room for differences of opinion here. At least now, you know what to expect when it is time to prorate propane on your closing statement.
Possibly Related Posts: