Property Management Issues and Concerns: A Real Estate Broker Advisory

For licensed real estate brokers that practice in the area of property management, there are many things that are unique to this area of real estate practice, and certain problem issues often come to the attention of the Real Estate Commission on a recurring basis. Being more aware of some of these concerns will help you stay compliant with the Commission rules, and improve your property management business.

Property Management Guidance
Commingling money belonging to others.

A broker’s or brokerage firm’s personal or business operating funds must not be commingled with money belonging to others. One or more separate trust or escrow accounts may be maintained by a brokerage firm as long as the duties and limitations in Rule 5.10 are adhered to. This is an area of concern that can have devastating effects on one’s license if a violation is found to occur. Some instances to watch out for include:

Commingling Examples

Trust or escrow accounts must be fiduciary in nature and deposited with a recognized depository.

The trust or escrow account must be a “true” trust account and not one that is just labeled with the word “trust.” A properly established trust or escrow account must meet certain statutory conditions and be correctly titled in the bank’s depository agreement and signature cards. Oftentimes an account may be set up that is simply labeled for instance, “property management escrow account” or “trust account” which might not in fact be a “true” trust or escrow account.

Resources

Money belonging to others which is accepted for deposit in connection with activities not involving real estate brokerage services must be deposited into broker’s or brokerage firm’s trust or escrow account(s).

Such activities not involving real estate brokerage services include:

If a broker accepts money belonging to others for deposit into broker’s or brokerage firm’s trust or escrow account for activities not involving real estate brokerage services, the broker must either:

In either case, compliance with the Chapter 5 Rules must be adhered to.

Resources

Many investigations involve the failure to follow Rule 5.14 concerning recordkeeping requirements, especially not performing or not conducting 3-way reconciliations properly.

Resources

A common complaint is that the property manager does not disclose or properly disclose the required brokerage relationship disclosures.