Trust Accounts, Escrow, Settlement, and Recordkeeping
What the exam tests
Trust Accounts, Escrow, Settlement, and Recordkeeping tests money handling and records: trust or escrow accounts, deposit and disbursement rules, reconciliation, settlement statements, and retention. The exam focuses on protecting other people's money.
Core rules
- Funds held for sellers, buyers, or third parties are trust funds. They must go into a separate trust or escrow account, not the auction company's operating account.
- Do not commingle trust funds with business or personal funds. Do not use trust funds to cover payroll, rent, or expenses, even temporarily.
- Deposit buyer deposits and earnest money promptly under the contract and Commission rules. Disburse only when authorized by the contract, closing, or written escrow instructions.
- Reconcile the trust account regularly; keep ledgers by client and transaction. Retain bidder registrations, bid records, contracts, settlement statements, deposit slips, checks, and correspondence for the required period.
- Settlement: calculate hammer price, buyer's premium, sales tax if applicable, commissions, fees, and net to seller. Give an accounting.
Worked example
An auction company receives $20,000 in buyer deposits. It deposits them into its business account and pays event expenses, intending to replace the funds after settlement. That is commingling and conversion. If the company fails, buyers and sellers may lose money, and the licensee faces discipline. Correct handling is deposit to trust, record each buyer's funds, disburse at closing or refund per contract, and reconcile.
Traps
Do not net commission before depositing deposits. Do not treat buyer's premium as earned before the sale is final. Do not rely on bank balances alone; reconcile client ledgers. Do not destroy online bid records because the platform keeps a copy.