If you’re not a managing broker, you may consider trust accounting to be something that’s above your pay grade, a back-office task that you, fortunately, don’t need to worry about. However, in our recent podcast episode, it was clear that poor supervision, sloppy money handling and operating on autopilot can become your problem, too.
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If you’re working under the umbrella of a poorly managed, non-compliant brokerage, your professional reputation can take a hit. Here’s how to spot the risks early, document your own compliance hygiene and know when it’s time to walk.
Case study
In this week’s case, we looked at a California property management company that was pocketing its rental screening fees to the tune of $20,000 in never-pulled credit reports. Auditors also found trust account shortages that totaled $50,000.
Don’t miss the full episode for all of the details on that case. In the meantime, how can you protect yourself in the event that your broker is cutting corners?
How to protect yourself when your broker is cutting corners
1. Don’t treat ‘trust accounting’ like someone else’s problem
While you don’t need to be an accountant, you do need to know what “healthy” looks like in terms of brokerage operations. Remember, your own clients are almost certain to be affected by accounting irregularities, so if you think there’s carelessness on the numbers side, pay attention.
2. Even if everything’s been ‘fine’ so far, an audit can hurt
As Summer said, routine audits can uncover “a kitchen sink of violations.” This case in particular started with questions about screening fees. Once the auditors got into the books, everything else started to come to light. There’s no such thing as “partial compliance.”
3. If your broker is asleep at the wheel, you’re in danger
Red flags can include:
- A broker of record who’s never available
- Supervision that’s out of state or “highly delegated”
- Over-delegation to non-licensed staffers
These are all signals that trouble may be brewing. If you feel like your leadership is absent and operational questions get brushed off, that’s not just a free-wheeling company culture; it’s risk.
4. Ask the small questions that reveal big systemic cracks
If you’re involved in property management, have investor clients, are involved in soliciting landlords and tenants, or oversee leasing activities, here are the questions you should be asking:
- Who actually handles money movement and logs?
- What’s the process when a check comes in?
- If software “does everything,” who spot-checks or reconciles it?
For more questions you should be asking (but probably haven’t), check out 35 questions your next broker hopes you don’t ask.
5. Protect your reputation over the brokerage’s
If you’ve gotten nervous or if you suspect that something not-quite-right is happening, it doesn’t matter that you’re not the responsible party. You could get caught up in an investigation or be hurt professionally if your managing broker has their license impacted. Leaving isn’t disloyal; it’s self-preservation. Don’t let anyone tell you otherwise.
6. Don’t ignore ‘jokes’ or behaviors that normalize bigger problems
Even the way your broker and colleagues talk about money matters. When funds are discussed casually — or described as being “shuffled” — it can signal deeper issues behind the scenes. More importantly, a lack of formal policies and procedures is a telling sign that trust fund handling is not being approached as a core compliance obligation.
7. Compliance is client care, not bureaucracy
You owe a fiduciary duty to your clients, and part of your due diligence includes making sure that you — and the place where you hang your license — have clean hands when it comes to the way your clients’ money is handled. Protect your clients and your license by ensuring scrupulous best practices around compliance and recording any irregularities that you encounter.
A well-run brokerage should never be afraid of your questions. They should be happy to explain policies and processes to you so that you can offer assurance to your clients. If you can’t get straight answers to your inquiries about money handling and supervision, it might be time for you to seek greener (or more compliant) pastures elsewhere.
NOTE: The opinions and recommendations expressed in this article are based on Summer Goralik’s experience as a real estate compliance consultant and former investigator for the California Department of Real Estate. They are provided for informational purposes only and should not be construed as legal advice. Readers should consult with their brokerage and/or qualified legal counsel in their jurisdiction for guidance on specific situations.
Troy Palmquist is the founder and principal at HomeCode Advisors. Connect with him on LinkedIn.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.
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