New Jersey Real Estate Salesperson · New Jersey Trust Funds and Escrow
Funds Received in a Fiduciary Capacity
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In 30 seconds
Money a licensee receives on behalf of someone else is held in a fiduciary capacity, which means it is never the licensee's money to keep, use, or park. The tested distinction is that a broker may hold that money in a trust account, while a salesperson may never hold it at all.
Why this matters
The exam likes to hand a salesperson a buyer's deposit check and ask what happens next, and the only correct answer in New Jersey is that it goes straight to the broker.
The college version
In normal terms
- Earnest money, rental deposits, escrow funds, and any other client money received during a transaction are trust funds held for the benefit of the parties, not for the licensee.
- In New Jersey, only the broker may hold those funds, in the broker's separate escrow or trust account; a salesperson who receives money must turn it over to the broker promptly.
- Every dollar in is deposited promptly within the timeframe NJREC requires, recorded, and matched to a receipt so the money can be traced from the moment it arrives.
Concepts in this outline
- Earnest money deposits — a buyer's good-faith deposit under a sales contract, held in trust by the broker until closing or another authorized disbursement (see Topic 15).
- Rental deposits — security deposits and advance rent a tenant pays through a licensee; trust money that belongs to the parties, not the firm, until properly applied.
- Escrow funds — money held by a neutral party until a stated condition is met, such as a closing or a repair being completed.
- Other money received in a fiduciary capacity — any additional client or customer money entrusted to the firm during a transaction, treated under the same trust rules as deposits.
- Who may receive and hold funds — only the broker, in the broker's trust or escrow account; a salesperson must turn over any funds received to the broker and may never hold them.
- Prompt deposit requirements — trust money must be deposited promptly, within the timeframe NJREC requires, never held or delayed for the licensee's convenience.
- Deposit records — the broker's written log of each deposit showing payer, amount, date, property, and account, kept so every dollar can be traced.
- Receipts and documentation — a written receipt to the person paying, plus copies of checks and instructions, proving what was received and when.
Eli explains
The same idea, in plain words
Explain it like I’m 10
Imagine a friend hands you money to hold. It is in your pocket, but it is not yours. That is holding money in a fiduciary capacity: you hold it for someone else, with a duty of trust.
In New Jersey real estate, this money includes earnest money deposits (a buyer's good-faith deposit under a sales contract), rental deposits (a tenant's security deposit or advance rent), escrow funds (money set aside until a condition is met), and any other money a client or customer entrusts to the firm. All of it is trust money.
The rule about who holds it is strict. The broker holds trust money in the broker's separate escrow or trust account (see Topic 15). A salesperson never holds it and delivers it to the broker as soon as it is received. The broker deposits it promptly, within the timeframe NJREC requires, and keeps a deposit record and a written receipt showing who paid, how much, for which property, and when. The New Jersey Real Estate Commission, within the Department of Banking and Insurance, can inspect those records.
Worked example
Priya, a salesperson with a Paramus brokerage, is presenting an offer on a Bergen County split-level. The buyers, the Okafors, hand her a check for their earnest money deposit, written to the broker's trust account as the contract directs. Priya writes the Okafors a receipt, notes the amount, date, and property address, and drives the check to her broker, Dana, that same afternoon. Dana logs it in the firm's deposit record and deposits it into the trust account promptly, within the timeframe NJREC requires. When the sellers' attorney later asks whether the deposit has cleared, Dana answers from the record in seconds. Priya never touched the money as her own, and everyone can trace it.
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