Colorado Real Estate Broker Exam — All Questions

Under Colorado Real Estate Commission rules on trust (escrow) accounts, a broker holding earnest money for others must:

• a.Keep the funds in cash in the office safe
• b.Keep the funds in a separate trust account and retain transaction records for the required retention period✓
• c.Commingle the funds with brokerage revenue for convenience
• d.Deposit the funds into the broker's personal operating account

Colorado brokers must hold other people's money, such as earnest money, in a separate trust or escrow account and must not commingle it with personal or business funds. Brokers must maintain accurate records and retain transaction and account records for the period required by Commission rule, commonly four years. These safeguards protect consumer funds and support Commission audits.

A Colorado brokerage firm will hold the earnest money in a residential sale. It must be deposited in the firm's trust account no later than:

• a.one business day after the broker physically receives the funds
• b.three business days after receipt of funds or mutual execution of the contract, whichever is later✓
• c.five business days after receipt of funds or the mutual execution of the contract, whichever is later
• d.the date of closing, when the funds are delivered to the closing entity

Money belonging to others other than property management receipts must be deposited within three business days of receipt of funds or mutual execution of the contract, whichever is later. Property management money gets five business days. Cite: 4 CCR 725-1, Rules 5.7.A, 5.7.B and 5.12.B.

A Colorado brokerage firm engages in property management. The Commission's rules require it to maintain, at a minimum:

• a.separate trust accounts for rental receipts and for security deposits✓
• b.one trust account holding all money belonging to others
• c.one separate trust account for each property under management
• d.a trust account only when a deposit exceeds one month's rent

A brokerage firm engaged in property management must deposit rental receipts and security deposits in separate trust or escrow accounts, a minimum of one for rental receipts and a minimum of one for security deposits. A firm holding no money belonging to others need maintain no trust account at all. Cite: 4 CCR 725-1, Rules 5.5 and 5.4.

How often must a Colorado employing broker complete a three-way reconciliation of each trust or escrow account?

• a.Quarterly
• b.Annually
• c.Monthly✓
• d.Only when the Commission audits the firm

A three-way reconciliation must be performed monthly and a report maintained, showing that on the same date the journal cash balance, the sum of all ledger balances, and the reconciled bank balance agree. No ledger may ever carry a negative balance. Cite: 4 CCR 725-1, Rule 5.14.C.

Commission money sitting in a Colorado brokerage firm's trust account that has become due and payable to the firm must be:

• a.withdrawn monthly✓
• b.left in the account until every beneficiary consents in writing
• c.withdrawn within three business days after the closing date
• d.transferred into the employing broker's personal operating account

Money in a trust account that becomes due and payable to the brokerage firm must be withdrawn monthly. Leaving earned money there is commingling; a firm may only deposit personal funds to cover bank charges, and must journal and ledger that entry. Cite: 4 CCR 725-1, Rules 5.10.A and 5.10.D.

How long must a Colorado broker and brokerage firm retain the transaction file for a sale that closed?

• a.One year
• b.Three years
• c.Seven years
• d.Four years✓

Transaction files must be retained for four years from the consummation date of the transaction, or from the expiration date of a listing contract that does not consummate. Attorney-drafted transaction clauses must likewise be kept four years from last use. Cite: 4 CCR 725-1, Rules 6.20 and 7.3.B.

A Colorado property management firm wants to charge an owner a non-refundable retainer. Under the Commission's rules the retainer:

• a.is prohibited in every Colorado property management agreement
• b.need not go into a trust account if the parties agree to that in writing✓
• c.must be deposited into the security deposit escrow account
• d.must be refunded if the owner cancels within thirty days

Money collected before services are performed generally must be deposited in a trust account, but nothing prohibits a brokerage firm from taking a non-refundable retainer that need not be deposited, provided this is specifically agreed to in writing between the firm and the person paying it. Cite: 4 CCR 725-1, Rules 5.20.A and 5.20.B.

A Colorado brokerage firm takes over management of an apartment building from another firm. The previous firm must transfer the tenants' security deposits within:

• a.sixty days after execution or assignment of the management agreement✓
• b.thirty days after execution or assignment of the management agreement
• c.ten business days after the new firm makes written demand
• d.the remaining term of each tenant's existing lease

The new firm must disclose the status of any security deposit held by the previous firm to the owner and tenant in writing within thirty days of execution or assignment of the management agreement, and the previous firm must transfer the deposits within sixty days and confirm the amounts transferred. Cite: 4 CCR 725-1, Rule 5.8.B.