Trust Accounts, Records, and Brokerage Operations
Trust funds and records
Earnest money and any other funds held for others belong in the broker's trust account - an account separate from operating funds, with no commingling of personal or business money. The broker is accountable for every deposit and disbursement. Under Minn. Stat. § 82.75 the broker must keep complete records of trust funds and transactions, generally for six years, and must reconcile the trust records to the bank statement regularly (monthly in practice).
Transaction files should contain the agency disclosure, purchase agreement and addenda, property disclosures, earnest money receipt, trust ledger and cancelled checks, closing statements, and advertising copy. Salespersons must turn funds over to the broker promptly; a salesperson may not hold trust funds. If a transaction fails, earnest money is released only under the contract, by written agreement of the parties, or by court order - not by the broker's judgment about who breached.
Brokerage operations also cover supervision, written office policy, independent-contractor versus employee status, unlicensed assistant limits, team names and advertising, and record retention. A broker who fails to supervise can be disciplined even when the salesperson acted alone.
Traps
- Commingling a commission check in the trust account.
- Releasing earnest money to the 'deserving' party without written authorization.
- Reconciling only the checkbook, not the bank balance to the ledger.
- Allowing a salesperson to deposit a buyer's check into a personal or business account.
Rule of thumb
Do a three-way reconciliation monthly: bank balance, book balance, and individual client ledgers must all agree, with outstanding items listed.
Worked example
A buyer deposits $5,000 earnest money. The deal terminates on a failed inspection, and both parties sign a cancellation and release directing funds to the buyer. The broker writes the trust check, records the disbursement in the ledger, and files the signed release in the transaction record.