Quick answer
Money a Georgia licensee receives on behalf of someone else belongs in the broker's trust account, not in the brokerage's operating account and never in a personal one. Mixing it with the broker's own funds is commingling. Spending it is conversion. Both are licence-law violations under O.C.G.A. § 43-40, and conversion is a criminal matter as well.
State laws and rules make up a meaningful slice of the Georgia supplement, and trust account questions appear in almost every practice set for a simple reason: this is what the Georgia Real Estate Commission actually disciplines people for.
Whose money is it
Earnest money is the buyer's until the transaction says otherwise. The broker holds it, but holding is not owning. That single idea generates most of the correct answers on this topic.
The consequences follow from it:
- The funds sit in a trust or escrow account, separate from the brokerage's own money.
- The account is maintained in a Georgia financial institution, and the broker is responsible for it whoever in the firm handles the paperwork.
- Records must show whose money is in there and how much, so the account can be reconciled at any time.
- The broker cannot use the balance as working capital, even briefly, even if they intend to put it back.
Exam trap
A broker who deposits earnest money into the operating account and pays it out correctly at closing has still committed a violation. The question is where the money sat, not whether anyone lost anything.
Commingling and conversion
These two words are worth separating cleanly, because questions offer both and only one fits.
Commingling is mixing trust funds with the broker's own funds. Depositing earnest money into the general business account is commingling. So is leaving earned commission sitting in the trust account long after it should have been withdrawn.
Conversion is using trust funds for a purpose they were not entrusted for. Paying the office electricity bill out of the trust account is conversion. It is the more serious of the two and carries consequences beyond the licence.
A broker is permitted to keep a small amount of their own money in the trust account to cover bank service charges and keep the account open. That narrow exception exists so the account does not close itself, and it does not open the door to anything else.
Timing
Deposit deadlines are where candidates lose marks through vagueness. The rule to carry is that the licensee delivers the money to the broker promptly, and the broker deposits it into the trust account by the deadline the agreement specifies, or promptly if the agreement is silent.
A useful habit for the exam: when a Georgia question gives you a contract term about when earnest money is to be deposited, the contract term governs. When it does not, the answer is the one that says promptly rather than the one that names an arbitrary number of days.
Disputes over the deposit
This is where the real-world stakes are highest and where the exam likes scenarios.
A transaction falls apart. The buyer says the deposit is theirs because a contingency failed. The seller says it is theirs because the buyer walked. The broker holds the money and both parties are shouting.
What the broker must not do is decide. The broker is a stakeholder, not a judge, and disbursing to whichever party seems more sympathetic is how licences get suspended. The lawful routes are:
- Get a written agreement signed by both parties directing where the money goes.
- Follow a court order.
- Interplead the funds, which means paying them into court and letting the parties argue it out there.
Worth knowing
A broker who has followed the disbursement rules and interpleaded the money has done the right thing even though nobody is happy. The exam rewards the procedurally correct answer, not the fair-sounding one.
Advertising and other licence law reflexes
The same chapter of Georgia law drives several other reflexes the supplement tests.
- Advertising must identify the firm. A salesperson cannot advertise in a way that suggests they are operating independently of their broker.
- A salesperson is paid by their broker, not directly by a client or a co-operating firm.
- A licensee must disclose their status as a licensee when buying or selling for their own account.
- The licensee works under the supervision of the broker, and the broker is responsible for the acts of the licensees in the firm.
The Georgia licence pillar covers the licensing lifecycle, the trap library has the distractors these rules generate, and the escrow and trust account glossary entry has the definition in one line.
Check yourself
1. A broker deposits a buyer's earnest money into the brokerage's general operating account and pays it out correctly at closing three weeks later. What has the broker done?
Show the answer
Answer: B. Placing trust money in an account holding the broker's own funds is commingling, and the correct outcome at closing does not cure it.
2. A buyer and seller both claim the earnest money after a failed contract. What may the broker lawfully do?
Show the answer
Answer: C. The broker is a stakeholder and cannot adjudicate. A written agreement signed by both parties, a court order, or interpleader are the lawful routes.
3. Which is an example of conversion rather than commingling?
Show the answer
Answer: C. Using trust funds for the broker's own purpose is conversion. Choices A and B describe commingling, and D is the permitted exception for service charges.
4. Who may pay a Georgia salesperson a commission for a completed transaction?
Show the answer
Answer: C. A salesperson is compensated by the broker who holds their licence, not directly by clients or by another firm.
FAQ
Can a broker earn interest on a trust account?
Interest belongs to the funds' owner unless the parties agree otherwise in writing. A broker treating interest on client money as their own is the same problem as conversion in a smaller costume.
Does the salesperson ever hold the earnest money?
No. A salesperson who receives a cheque delivers it to their broker promptly. The account is the broker's responsibility and the broker's licence is on the line.
What if the buyer's cheque bounces?
The broker notifies the parties. A failed deposit can be a breach of the contract term requiring the deposit, and it is the seller's decision what to do about it, not the broker's.
Is the trust account rule different for property management?
The principle is identical. Rents and security deposits held for an owner are other people's money and belong in a trust account, kept separate from the firm's funds.