Who Pays for Propane at Closing When Buying a Home?
Clarify the process for handling propane expenses when a property changes hands. Understand the financial implications for buyers and sellers.
When buying a home, many aspects of the transaction are clearly defined, but items like propane can introduce unexpected questions for both buyers and sellers. Determining who pays for the remaining propane in a tank is a common point of discussion during a home sale. This often leads to confusion regarding responsibilities and costs associated with this heating and cooking fuel. Resolving this detail smoothly is important for a successful real estate closing.
Understanding Propane Tank Status
The status of the propane tank at a property is a primary factor in determining how propane costs are handled during a home sale. Propane tanks are typically either owned by the homeowner or leased from a propane supplier. Understanding this distinction is crucial.
If the seller owns the propane tank, it is generally considered a fixture that transfers with the property. In this scenario, the primary concern shifts from the tank itself to the value of the propane fuel remaining inside it. The new homeowner gains full control over choosing a propane provider, offering flexibility for future purchases and service.
Alternatively, if the tank is leased, it remains the property of the propane supplier. The lease agreement often needs to be transferred to the buyer, or the buyer may need to establish a new lease directly with the supplier. The seller is typically responsible for arranging a final reading and bill with the supplier, ensuring their account is settled. The buyer then assumes responsibility for future lease payments and propane purchases under the existing or a new agreement.
Determining Propane Value and Proration
Once the tank’s status is clear, the next step involves determining the value of the propane contents and how this cost is shared. The amount of propane remaining in the tank is typically measured by the supplier shortly before the closing date.
The value of the remaining propane is usually calculated based on the propane supplier’s current market rate per gallon. Residential propane prices in the United States can vary, ranging approximately from $2.00 to $3.50 per gallon, depending on regional factors and market fluctuations. The seller can obtain a written statement from their propane supplier confirming the quantity and current price, which helps facilitate the valuation.
Proration is the process of dividing the cost of the propane between the buyer and seller based on the transfer date. The seller typically pays for the propane consumed up to the closing, and the buyer reimburses the seller for the remaining fuel at closing. This calculation ensures a fair distribution of costs, where the buyer pays for the fuel they will use. For instance, if a 500-gallon tank is 50% full, containing 250 gallons, and the price is $2.50 per gallon, the value of the remaining propane would be $625.
Negotiating and Documenting Propane Costs
While proration is a common practice, the exact payment for propane often becomes a point of negotiation between the buyer and seller. The parties might agree on a specific price for the propane, or one party might agree to cover the cost entirely as part of the overall transaction.
The agreed-upon terms for the propane must be formally documented within the real estate purchase agreement or a specific addendum. This documentation should clearly state whether the buyer will reimburse the seller for the propane, if the seller will leave it as a courtesy, or any other specific arrangements. Standard real estate contracts often include provisions for prorating fuel, emphasizing the need to specify how such costs will be handled.
Finalizing Propane Adjustments at Closing
The agreed-upon cost for the propane is integrated into the official closing documents. This amount will appear as an adjustment on the Closing Disclosure (CD) or Settlement Statement (HUD-1), which are critical summaries of all financial transactions in the home sale.
Typically, the propane adjustment is handled as a credit to one party and a corresponding debit to the other. If the buyer is reimbursing the seller for the propane, the seller will receive a credit for the value of the remaining fuel, and the buyer will be debited that same amount. This means the buyer pays for the propane by having the cost added to the total funds due at closing, rather than making a separate payment outside of the closing process.