Brokerage Trust Account Requirements in Alabama Real Estate

Instructor: Tara Schofield
Holding earnest money deposits is a serious obligation of a real estate broker and must be handled accounting to Alabama's regulations. Learn what brokers are responsible for and how funds must be handled.

What Is a Brokerage Trust Account?

Congratulations! You just got your first offer on the first house you've listed as a real estate agent. Your seller quickly accepted the offer and it's time to receive the earnest money deposit. But what will you do with it?

Every broker must have a trust account, an account established to hold earnest money deposits from a buyer until the transaction closes. Deposits cannot be commingled or mixed with other funds; they must be put in the specific trust account that is specifically targeted to hold client funds.

How Are Funds Handled?

As soon as earnest money deposits are collected, they must be deposited into the trust account. Checks cannot be held at the office, nor can cash be put in the receptionist's drawer for a week or two. The sales offer clearly outlines the amount and due date of the earnest money deposit. That money must be collected and deposited quickly after it is received by the buyer's agent or buyer's broker.

In the above scenario, the buyer's agent lets you know she has collected the earnest money deposit from the buyer. The buyer and seller agreed to have the seller's broker hold the funds, per the sales agreement. Therefore, you meet with the buyer's agent to collect the funds and give it to the office manager to deposit.

Mishandling Funds

Your broker is ultimately responsible for managing the trust account. Your broker has asked the office manager to handle the deposits and accounting for the trust account, and the broker reviews the reports every month.

Every broker must be aware of the status of the trust account. If the funds are mishandled, meaning they are not deposited quickly, used for other purposes, or put in the wrong account, the broker may be fined or penalized by the Alabama Real Estate Commission. If the funds are spent, that may be considered theft and the broker could be prosecuted in civil court.

Handling earnest money deposits is a very serious matter, and brokers can get in trouble for not taking care of a client's money properly.

Avoiding Liabilities

Holding earnest money deposits is a responsibility that cannot be avoided. However, a broker can avoid liabilities by having thorough processes for managing the funds. There must be a system for depositing money quickly and a clear record to show what is in the account, and the only withdrawals from the account should be when a transaction closes or a sale falls through.

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