Texas Real Estate Sales Agent ExamReal Estate PracticeMedium
A real estate agent is preparing to open their own independent brokerage in Texas. To ensure they comply with TREC's trust account rules, which of the following is an acceptable practice for handling earnest money deposits?
- AHold earnest money checks in a locked office safe until the closing date.
- BDeposit earnest money into a federally insured trust account titled 'Trust Account' or 'Escrow Account'.
- CDeposit earnest money into the broker's personal checking account, as long as separate ledger records are maintained.
- DPlace earnest money into an interest-bearing personal savings account, with interest designated for the client.
Show answer & explanationAnswer & explanation
Correct answer: B. Deposit earnest money into a federally insured trust account titled 'Trust Account' or 'Escrow Account'.
TREC rules require earnest money and other client funds to be deposited into a federally insured trust account, separate from the broker's operating or personal accounts. The account must be clearly designated as a trust or escrow account.
Why the other options are wrong
- A. Holding un-deposited checks is generally not best practice and can lead to issues if the check is lost or delayed. Funds should be deposited promptly.
- C. This is commingling, which is strictly prohibited. Client funds must be separate from personal funds.
- D. Using a personal savings account, even if interest is for the client, constitutes commingling. Trust accounts must be separate business accounts.
TREC Trust Account Requirements
In Texas, real estate brokers must deposit all client funds (e.g., earnest money, security deposits) into a federally insured trust or escrow account, separate from their operating or personal accounts.
- Prevents commingling of funds.
- Ensures client funds are protected and accounted for.
- Account must be clearly designated as a trust or escrow account.
Memory trick: Client cash in a trust account, safe and sound, never found on personal ground.