Brokerage Operations & Supervision
~11 min read · Handle trust accounts, commingling, advertising and broker supervision duties.
Brokerage operations law concentrates on one account and one org chart: the trust account where other people's money lives untouched, and the supervision structure that makes the broker answerable for every licensee underneath. Commingling and conversion are the exam's twin cardinal sins.
Trust funds
Money held for others — earnest deposits, rents, security deposits — goes into the broker's trust (escrow) account, separate from operating funds, deposited within the statutory window (often 24–72 hours or per contract). Commingling = mixing trust and personal/business funds (even temporarily); conversion = actually USING trust money — the felony-grade escalation. A small broker's-own cushion to cover bank fees is allowed where statutes permit; complete records and prompt accounting are mandatory; disputed deposits stay put pending release, interpleader, or order.
- Separate trust account; deposit deadlines are statutory
- Commingling = mixing; conversion = spending — both career-enders
- Records + reconciliation; disputes freeze the funds
Supervision and the office
The managing/designated broker is responsible for supervising salespersons and associate brokers: reviewing contracts, policies and training, advertising approval, and trust-account oversight — liability for a licensee's misconduct can reach the broker who failed to supervise. Office rules: brokerage identity in advertising, sign and license display per statute, records retention (commonly ~3 years). Independent-contractor tax status (written agreement, commission-based pay, no withholding) does not dilute the broker's license-law supervision duties.
- Broker reviews, trains, and answers for the office
- IC status is a tax posture — supervision duties remain
- Advertising carries the brokerage identity; records kept ~3 years
Compensation plumbing
All fees flow through the broker; salespersons are paid only by their own broker — never directly by principals, other brokers, or title companies. Referral fees between BROKERAGES are lawful; kickbacks from settlement providers are RESPA violations. Commission splits, team arrangements, and desk fees are internal contracts riding on that plumbing.
Worked example
A cash-tight broker deposits a $20,000 earnest check into the operating account 'for the weekend' to avoid a bank fee, moves it to trust on Monday, and later 'borrows' $8,000 of a tenant security deposit to make payroll, repaying it in ten days. An audit reconstructs both events. What has he done?
Event one is commingling the moment the trust check touched the operating account — intent to move it Monday, the short duration, and the bank-fee motive are all irrelevant; the violation is the mixing itself, and deposit-timing rules were likely broken too. Event two escalates to conversion: trust money was USED for the brokerage's benefit — repayment in ten days mitigates nothing legally; conversion is complete on use, commonly criminal (theft-family), and a near-certain license revocation. The audit's reconstruction is standard: trust-account records are exactly what examiners reconcile. The compliant universe was simple — trust money goes to trust, on time, and is never anyone's bridge loan.
Common exam pitfalls
Excusing brief or well-intentioned mixing.
Commingling is complete on contact — duration, intent, and repayment don't un-mix the funds.
Confusing commingling with conversion.
Mixing is commingling; SPENDING is conversion — the second adds criminal exposure to the discipline.
Reading independent-contractor status as unsupervised status.
The broker's license-law duty to supervise survives any tax classification.
Their money, their account, untouched, on time — and the broker answers for the whole office.
Recap
- Trust funds: separate account, statutory deposit deadlines
- Commingling = mixing; conversion = using — discipline vs crime
- Disputed deposits stay frozen pending resolution
- Broker supervises contracts, ads, training, and trust records
- Compensation flows only through the broker
- IC tax status never cancels supervision duties
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