Commingling

Key Takeaways

• Commingling is mixing money that belongs to clients, such as earnest money or rent, with a real estate firm's own operating funds.
• RCW 18.85.285 requires licensees to keep client funds separate and apart and physically segregated from the licensees' own funds.
• A designated broker may keep only a minimal amount of firm money in the trust account, enough to open it or to keep the bank from closing it.
• Commissions owed to the firm's own licensees and the firm's business expenses are paid from the business bank account, never out of the trust account.

What It Means

Commingling is the mixing of money that belongs to other people with money that belongs to a real estate firm. A buyer's earnest money, a tenant's rent, a damage deposit, and an advance fee are all client funds. They pass through the firm, but the firm never owns them. Washington treats those dollars as trust funds the moment a licensee takes control of them, and they belong in the firm's Trust Account until the transaction or the management agreement says who gets them.

The violation is the mixing itself, not theft. A designated broker who parks a $10,000 Earnest Money check in the firm's general checking account for a week has commingled, even if every dollar is paid out correctly later and no client loses anything. Regulators treat it as serious because once client money sits in an operating account it can be spent on payroll, reached by a creditor, or simply lost in the bookkeeping.

Commingling is not the same as conversion, which is using the money for the licensee or for someone else not entitled to it. Mixing the funds is what makes conversion easy to hide, so the rules attack the mixing first.

How It Works in Washington

RCW 18.85.285(5) tells every licensee to keep client funds separate and apart and physically segregated from the licensees' own funds. Money received has to be deposited into the firm's trust bank account by the next banking day after receipt, unless the purchase and sale agreement provides for a deferred deposit or delivery (RCW 18.85.285(7)).

WAC 308-124E-105 puts the Designated Broker in charge of the trust account and closes the two doors that create commingling. Under subsection (15)(a), no deposits may be made of funds that belong to the designated broker or the firm, except a minimal amount to open the trust bank account or to keep it from being closed. Under subsection (16)(c), a commission owed to a person licensed to the firm, or any business expense of the firm, must be paid from the firm's regular business bank account. Subsection (16)(d) treats bank charges on the trust account as business overhead, so those go to the business account too.

Any violation of RCW 18.85.285 is grounds for disciplinary action under RCW 18.85.285(12)(b), and converting money delivered in trust to a person's own use is separately listed as a ground for discipline in RCW 18.85.361(5).

Example

Maya is the designated broker at Cascade Ridge Realty. On a Tuesday afternoon her buyer's agent hands her a $12,000 earnest money check on the Whitmore purchase, and the firm's own $4,300 commission check from a closing arrives in the same mail. Maya deposits both into the firm's business checking account and plans to move the earnest money on Friday.

She has commingled. The $12,000 is trust money and belonged in the firm's real estate trust bank account by Wednesday, the next banking day. The $4,300 commission is firm money and was placed correctly. The fix is not to move the commission into trust, which would be the same violation running the other direction. Maya has to transfer the $12,000 into the trust account, post it to the Whitmore client ledger, and document the correction, because the reconciled trust balance must equal the outstanding liability to clients at all times.

Common Mistakes and Exam Traps

• Commingling is mixing client funds with firm funds. Conversion is using those funds for the licensee or for anyone not entitled to them. Exam questions offer conversion as the tempting wrong answer.
• Depositing a minimal amount of firm money to open the trust account, or to keep the bank from closing it, is allowed, so a question describing a small opening balance is not describing a violation.
• Paying an affiliated broker's commission straight out of the trust account is a violation even when the commission is fully earned, because commissions to the firm's own licensees come from the business account.
• No client has to lose a dollar for commingling to occur. Harm and intent are not required.