Topic 5.3: Brokers Escrow Account

Learning Objectives

After successfully completing this topic, you will be able to
• list the two ways a broker can use to safeguard trust funds,
• define the term “immediately” as it applies to the handling of a customer’s trust funds, and
• distinguish between the terms commingling and conversion.

Holding Customer Funds in Escrow

An escrow account is a place to deposit money to be held in trust by a third party who is not a principal to the transaction. An escrow account is also called a trust account. A broker may receive funds in the form of cash, money order, personal check, or securities that can be converted into cash. 

In real estate sales transactions, buyers customarily give a good-faith deposit with their offer to purchase a property. The broker may hold the deposit in an escrow account. A broker who performs property management receives security deposits to assure the landlord that the tenant will take good care of the property and receives rent from the tenant. In both instances, the funds that the tenant gives to a broker or sales associate must be placed in in the broker’s trust account.

The three methods a broker may use to safeguard trust funds for real estate sales deposits are

1.     maintain an escrow account for trust funds,
2.     place deposits with a title insurance escrow account, or
3.     place deposits with an attorney’s escrow account.

Property management accounts are held in the broker’s escrow account.

Immediate Deposit of funds

When the broker or sales associate receives trust funds, there are strict requirements for how the funds must be handled. If funds are given to a sales associate by a customer, the sales associate must immediately give the funds to the broker (“immediately” means by the end of the next business day). The broker must immediately deposit the funds into the escrow account (meaning no later than the end of the third business day after the customer first gave the funds). The day the sales associate receives the fund is not counted as one of the three days.

Example showing handling of good-faith deposits

WednesdayThursday (1st  Day)Friday (2nd Day)Monday (3rd Day)
Customer gives check to sales associateSales associate must give check to brokerNo required actionBroker must deposit check in trust account

Where to deposit funds

A broker’s escrow account must be in a Florida commercial bank, credit union, or savings association.

When a check is made to the sales associate

If the customer’s check is made payable to the sales associate, the sales associate should ask that the customer write a new check made out to the broker’s escrow account. If that is not possible, the sales associate should endorse the check to the broker’s escrow account. The downside of this alternative is that it would make the sales associate a co-signer on the check, becoming liable if the check is not good.

Broker must be a check-signer

The broker may authorize other persons, such as an office manager or an attorney, to be check signers, but the law requires the broker to be an authorized check-signer on the escrow account.

Broker must review and sign the account reconciliation

The broker must ensure that the escrow account is reconciled each month and must sign the reconciliation.

Post-dated checks

Postdated checks are legal in Florida

Sometimes a buyer will give the broker a postdated check as a good-faith deposit. Postdated checks are legal in Florida, and they have the status of a promissory note. If they are dishonored, they are more difficult to collect, because the person who accepted the check was informed that the check would not be good until the stated date. The contract offer should clearly state that the good-faith deposit is in the form of a post-dated check, and the seller should approve that fact before accepting the offer. The broker must hold the check in a secure place until the date on the check, and then deposit it immediately. The broker is not responsible if the check is dishonored unless the broker failed to deposit the check on time.

Interest-Bearing Escrow Accounts

Before a broker can deposit funds into an interest-bearing escrow account, all parties to the contract must give written consent stating which party is entitled to the interest. There is no rule that prohibits the broker from receiving the interest if all parties agree.

Commingling Customer Funds

Commingling means that a broker mixed a customer’s money with the broker’s own money. This is a serious violation for which the broker’s license could be revoked. Brokers may not put customers’ money into the broker’s business or personal accounts. They must put the funds in escrow or with an escrow company.

An exception to this rule allows a broker to put up to $1,000 of the broker’s funds into a sales escrow account, or up to $5,000 into a property management account. These funds ensure that bank charges or returned checks will not result in using the other customers’ funds.

Conversion is the administrative term for the theft of property or funds from a customer.