What is a real estate trust account (escrow account)?

Real estate trust accounts (also called escrow accounts) hold client funds that pass through the brokerage during transactions. Common deposits: earnest money from buyers, security deposits for rental management, rents collected for landlords. State laws require strict separation: (1) Funds must be in a designated trust account at a bank chartered to do business in the state (some states require non-interest-bearing accounts; others require interest-bearing accounts with interest going to specified parties or charities); (2) Funds must be deposited promptly (typically within 1-3 business days of receipt); (3) Detailed records must be maintained for each transaction; (4) Monthly reconciliation between the bank statement and the brokerage's records is required; (5) Commingling — mixing client funds with the broker's own funds — is a major violation; (6) Conversion — using client funds for the broker's purposes — is a criminal violation. Trust account violations are among the most common reasons for license suspension and revocation; states audit trust accounts and impose serious penalties for shortfalls or commingling. The managing broker bears personal responsibility for trust account integrity.