An agent holds $180,000 in trust across four transactions. One agreement is validly cancelled because the purchaser's finance condition was not met, and both parties' lawyers confirm the $60,000 deposit is to be refunded to the purchaser. What is the correct trust account procedure?
Correct Answer
D) Follow the agreement's terms, refund the deposit, and keep proper records
Section 122 of the Real Estate Agents Act 2008 requires trust money to be paid to the person lawfully entitled to it, or as they direct in writing, and only from the trust account. With the agreement validly cancelled and both lawyers confirming the purchaser is entitled, the agent refunds the $60,000 from the funds held for that transaction and records it. Under section 123 nothing may be paid out within 10 working days of receipt unless there is a court order or an authority signed by all parties.
Why This Is the Correct Answer
Section 122 requires money received in a transaction to be paid to the person lawfully entitled to it, or as they direct in writing, and only from the trust account. With the agreement cancelled and entitlement confirmed, the agent refunds the purchaser from the funds held for that transaction and records it, provided the 10-working-day hold in section 123 has passed.
Why the Other Options Are Wrong
Option A: Pay the refund from the agency's office account and reimburse it from trust later
Trust money is paid from the trust account to the person entitled (s 122); routing it through the office account mixes client and agency money.
Option B: Hold the refund until the agency's next scheduled trust account audit is completed
Once the person entitled is clear, section 122 requires payment to them; an audit timetable does not delay what a client is owed.
Option C: Top up the refund with other clients' deposits if that transaction's balance falls short
Each client's money belongs to that client; using one client's funds for another's refund is a serious breach of the trust account rules.
Deep Analysis of This Compliance Question
The key idea is that trust money is held for particular people. Once it is clear who is entitled, the agent pays that person from the money held for that transaction, and the records must show exactly that. Where entitlement is disputed, section 122(2) lets the agent keep the money in trust while it finds out who is entitled, and section 123(3) requires a court order or all parties' signed authority if title objections have been raised.
Background Knowledge for Compliance
Section 122 of the Real Estate Agents Act 2008 requires money received by an agent to be paid into a trust account and paid out only to the person entitled or as they direct in writing. Section 123 requires money to be held for 10 working days unless a court order or all parties' signed authority allows earlier release. The Real Estate Agents (Audit) Regulations 2009 set record-keeping and receipting rules.
Memory Technique
Remember STAR: Sale agreement terms, Trust account separation, Agreement authority, Records maintained. Like following a movie script (the sale agreement), the agent must stick to the predetermined storyline rather than improvising, while keeping detailed production notes (records) for each separate scene (transaction).
For trust payments, think STAR: the Sale agreement decides entitlement, each Transaction's money stays separate, the Agreement is the authority, and Records show every step.
Exam Tip for Compliance
Trust money goes to the person entitled, from the funds held for that transaction, with a full record; never through the office account or from other clients' money.
Real World Application in Compliance
A purchaser's finance condition fails and the agreement is cancelled. Both lawyers confirm in writing that the deposit goes back to the purchaser. The agency refunds the purchaser from that transaction's trust ledger and files the lawyers' confirmation with the payment record.
Common Mistakes to Avoid on Compliance Questions
- •Paying trust refunds from the office account
- •Using one client's money to complete another's refund
- •Delaying a payment the client is clearly entitled to
Related Topics & Key Terms
Key Terms:
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- → Which statement best describes the trust account requirements under the Real Estate Agents Act 2008?
- → An agency's trust account reconciliation reveals that interest earned on client deposits has been retained by the agency rather than distributed to clients. This practice is:
- → According to trust account regulations, how long must real estate agencies retain records of trust account transactions?
- → What is the primary purpose of the Consumer Guarantees Act 1993 in relation to real estate services?
- → Under the Consumer Guarantees Act 1993, if a real estate agent fails to exercise reasonable care and skill when marketing a property, what remedy might be available to the client?
- → A real estate agency's trust account shows a shortage of $5,000 during a routine audit. What is the most serious disciplinary order available under the Real Estate Agents Act 2008?
- → A real estate agent advertises a property as having a 'new roof' when they know it was repaired but not replaced. A buyer purchases based on this information and later discovers the truth. Which Acts could potentially apply to this situation?
- → Which statement best describes the primary purpose of trust accounts in real estate transactions?
- → A property advertisement states 'Guaranteed rental return of 8% per annum', although no one has contracted to pay that return. Under the Fair Trading Act 1986, this statement is:
- → How long must real estate agencies retain AML/CFT compliance records after a business relationship ends?
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