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Agency term

Client

A party who has an agency relationship with a broker, owed full fiduciary duties.

Why Client matters on the exam

This term belongs to Agency. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Client

Every Freehold question shows why the right answer is right — and cites its source.

A broker deposits a client's earnest money into the brokerage's operating account. This violation is called:

  1. Conversion to personal use
  2. Commingling
  3. Novation
  4. Subordination
Show answer & explanation

Commingling — Commingling is mixing client trust funds with the brokerage's own operating funds. It is a license-law violation even if no client money is ever spent, because it puts trust funds at risk.

Source: PSI National Real Estate Exam Content Outline — Broker Supplement

A broker uses funds from the trust account to cover the brokerage's payroll, intending to repay them next week. This is:

  1. Permitted if repaid within 30 days
  2. Commingling, a minor bookkeeping issue
  3. Acceptable with the owner's verbal consent
  4. Conversion, the unauthorized use of client funds
Show answer & explanation

Conversion, the unauthorized use of client funds — Conversion is using client trust funds for the broker's own purposes, which is more serious than commingling. Intent to repay does not cure the violation, and it commonly results in license revocation.

Source: PSI National Real Estate Exam Content Outline — Broker Supplement

In real estate practice, 'commingling' refers to which of the following?

  1. Mixing client trust funds with the broker's personal or operating funds
  2. Using client trust funds to pay personal expenses
  3. Splitting a commission between two cooperating brokers
  4. Depositing two clients' earnest money into the same trust account
Show answer & explanation

Mixing client trust funds with the broker's personal or operating funds — Commingling is the mixing of client trust funds with the broker's own operating or personal funds; it is prohibited even without misuse because it jeopardizes the safety of client money.

Source: PSI National Real Estate Exam Content Outline — Broker Supplement

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