Trust Account

What is a real estate trust account?

A real estate trust account is a separate account segregated from a broker’s funds, into which the broker deposits all funds entrusted to the agent by the principal (client).  It is a special account used when someone (the broker) holds money for another party (the principal).  The trust account for a brokerage firm must designate the principal broker as trustee.   It also must provide for the withdrawal of the funds upon demand.

Are there any synonyms for the term trust account?

Yes, there are synonyms for a real estate trust account that you must know for your licensing exam.  A trust account is also sometimes referred to as earnest money or escrow account.

Who has the right to manage and control an escrow account?trust account

The principal broker is responsible for the management and control of the account.  However, they may designate a broker-in-charge of a branch office to be responsible for transactions on behalf of that branch office.  The principal broker and broker-in-charge are held jointly accountable for funds the broker-in-charge is responsible for handling.

As you can see, brokers do not need to open a separate escrow account for each transaction they handle.  A broker can include money from several transactions in one escrow account.  For this reason, the broker must maintain complete records of all trust account transactions.  These records are subject to review by the state to ensure compliance.

Is there any liability a broker has related to the funds in an earnest money account?

Yes, there certainly is.  A broker is liable for the acts of his or her salesperson.  The broker is responsible to a buyer if one of the salespersons embezzles earnest money deposited in a trust account.

Additionally, there are generally state requirements related to what funds may be deposited into an account.  For example, a broker may not use trust fund monies to offset a valid debt owed by the client to the broker.

When must the money of a principal be deposited by the broker?

You must know the following information for the real estate licensing exam.  Any money provided by a principal to a broker must be deposited as soon as possible into the trust fund account.

Additionally, said monies could not be deposited into a non-trust account.  This is a violation known as commingling.  Nor is the broker allowed to use any of the principal’s funds for their own expenses.  This is a violation known as conversion.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Simple

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel