What are prepaid items in real estate transactions?

Prepaid items in real estate transactions refer to expenses that are paid in advance, typically by the seller, for services or costs that will be incurred in the future but are due before the closing of the sale. This could include items such as homeowners' insurance premiums, property taxes, and other similar expenses that need to be accounted for prior to the transfer of property ownership.

In essence, these prepaid items ensure that the buyer does not inherit any outstanding financial obligations related to the property's costs that should be settled before the sale is finalized. To illustrate, if a seller pre-pays property taxes for a period that extends into the months following the closing, it helps maintain clarity and fairness in the financial aspects of the transaction, ensuring that the buyer only pays for the portion of the taxes that applies after they take ownership.

The other options focus on expenses occurring at closing or obligations that the seller may have, which do not fit the definition of prepaid items as they relate specifically to paid expenses before a billing period. Thus, they do not accurately represent the concept of prepaid items as understood in real estate transactions.