Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What warning should agents convey regarding Builder's contracts that state, "All tax prorations are final"?

1. It's a legal requirement

2. It's typically negotiable

3. It can lead to substantial liability

4. It guarantees lower taxes

The correct answer is: It can lead to substantial liability

When discussing builder's contracts that state, "All tax prorations are final," it is crucial for agents to convey that this stipulation can lead to substantial liability. This warning is significant because it prevents agents and their clients from underestimating the importance of tax prorations in real estate transactions. Tax prorations refer to the allocation of property taxes between buyers and sellers, ensuring that each party pays their fair share up to the date of closing. When a contract declares that all tax prorations are final, it effectively means that once taxes are calculated and allocated, no adjustments can be made after the fact. If discrepancies arise after the closing—such as a significant increase in assessed value or tax rates—the buyer could be left to bear the financial burden without recourse for renegotiation. This timing aspect is particularly critical, as property owners may face unexpected tax assessments that could lead to substantial monetary implications. Therefore, agents must make it clear that understanding this finality in tax prorations is essential to avoid potential liability in financial planning for both themselves and their clients.