California Real Estate Broker ExaminationReal Estate PracticeHard
A real estate broker is acting as an escrow agent in a transaction where they are also the listing broker. This situation is commonly referred to as a 'broker-controlled escrow.' Under California law, what specific requirement applies to such an arrangement?
- AThe broker must disclose their dual role to all parties and obtain their written consent before the escrow begins.
- BThe broker must obtain a separate escrow license from the Department of Financial Protection and Innovation.
- CThe broker is prohibited from receiving any commission from the sale if they act as escrow agent.
- DThe broker must deposit all funds into a general business account, not a trust account.
Show answer & explanationAnswer & explanation
Correct answer: A. The broker must disclose their dual role to all parties and obtain their written consent before the escrow begins.
In a broker-controlled escrow (where the broker acts as both the real estate agent and the escrow agent), California law (Business and Professions Code Section 10145) requires explicit disclosure of this dual capacity to all parties and their written consent. This is crucial for avoiding conflicts of interest and ensuring transparency.
Why the other options are wrong
- B. Real estate brokers performing escrow services incidental to a real estate transaction under their license do not typically need a separate escrow license.
- C. The broker is generally allowed to receive both the commission and escrow fees, provided proper disclosure and consent are obtained.
- D. All funds received by a broker acting as an escrow agent must be placed in a neutral escrow account or a broker's trust account, not a general business account.
Broker-Controlled Escrow
A real estate transaction where the real estate broker involved in the sale also acts as the escrow agent, requiring specific disclosures and consents under California law.
- Permitted in California under strict conditions.
- Requires full written disclosure of dual role to all parties.
- Requires written consent from all parties.
- Broker must remain neutral in escrow duties despite agency role.
Memory trick: A broker's 'balance' is key; 'disclose' the dual role and get 'written consent'.