Conversion

Key Takeaways

• Conversion is using someone else's money or property as if it were your own, and for a licensee it usually means spending client funds held in trust.
• Commingling and conversion are different acts: mixing client money with firm or personal money is commingling, and taking or spending it is conversion.
• In Washington, conversion of money, a contract, a deed, a note, a mortgage, or other evidence of title to a person's own use, when delivered in trust or on condition, is a ground for disciplinary action under RCW 18.85.361(5).
• Failing to return money or a document within thirty days after the owner is entitled to it and makes demand is prima facie evidence of conversion under RCW 18.85.361(5).

What It Means

Conversion means treating money or property that belongs to someone else as if it were your own. In real estate practice it almost always refers to client money the firm holds in trust: earnest money, rent collected for an owner, a tenant's security deposit, or funds delivered on a condition that has not happened yet. The course frames it as conversion of any money or contract for a licensee's own use, or for the use of that licensee's principal, in a transaction.

Draw a hard line between conversion and Commingling. Commingling is mixing client funds with the firm's own funds or a personal account. Conversion is taking the money out, spending it, or applying it to a debt it was never meant to cover. The two travel together, because once the balances are blended no ledger shows whose dollars left the account.

Two other senses of the word float around real estate: converting apartments to condominiums, and a loan feature that converts an adjustable rate to a fixed one. Neither is this term. When a question puts the word next to a client, a deposit, or a firm account, it is asking about misused money.

How It Works in Washington

In Washington, the money rules come first and the discipline rule follows. RCW 18.85.285 requires a firm to keep client funds separate and apart and physically segregated from the licensees' own funds, and to deposit funds into the firm's Trust Account the next banking day following receipt unless the purchase and sale agreement provides for deferred deposit or delivery. WAC 308-124E-105 goes further: funds held in trust shall not be used for the benefit of the broker, the managing broker, the real estate firm, or any person not entitled to that benefit, and no deposits of the designated broker's or the firm's own money may go into the trust account beyond the small amount needed to open or maintain it.

RCW 18.85.361(5) supplies the consequence. Conversion of any money, contract, deed, note, mortgage, abstract, or other evidence of title to the person's own use, or to the use of that person's principal or any other person, when it was delivered in trust or on condition, is a ground for disciplinary action. The same subsection adds a rule of proof: failing to return the money or document within thirty days after the owner is entitled to it and makes demand is prima facie evidence of conversion. This is Unprofessional Conduct territory, and the license itself is what is at stake.

Example

Marcus Hale is the designated broker at Cedar Point Realty. On Monday, June 8, 2026, he receives a $12,000 Earnest Money check on a $600,000 Tacoma listing and deposits it in the firm's trust account the next banking day, Tuesday, June 9. So far he has done everything right.

On June 30, payroll is $4,000 short. Marcus moves $4,000 out of the trust account into the firm's operating account, leaving $8,000 of the buyer's money in trust, and puts the full $4,000 back on July 10 once a commission check clears. No client notices, and the sale closes on July 24 with the entire $12,000 credited to the buyer.

The June 30 transfer is the conversion. Client funds were used for the benefit of the firm, which WAC 308-124E-105 forbids outright, and RCW 18.85.361(5) makes conversion of money delivered in trust a ground for discipline. The thirty day rule in that same subsection is about proof, not permission: putting the money back on July 10 means no one ever gets the prima facie shortcut, but the ground for discipline is the use of the funds during those ten days.

Common Mistakes and Exam Traps

• Commingling and conversion are not synonyms. Depositing a client's earnest money into the firm's operating account is commingling, and spending it is conversion.
• In this context the word has nothing to do with converting apartments to condominiums or with a loan feature that converts an adjustable rate to a fixed rate. Read the question for money held in trust.
• The thirty day rule in RCW 18.85.361(5) is a rule of evidence, not a grace period. Failing to return money within thirty days of demand is prima facie evidence of conversion.
• A conversion case does not need a criminal charge behind it. RCW 18.85.361(5) lists conversion as a ground for disciplinary action against the license, which is an administrative proceeding of its own.