The Real Estate Beginners Guide to Commingling in 2025
Trust is the foundation of real estate transactions. Buyers, sellers, and investors all rely on real estate professionals to handle money securely and ethically. One major violation that undermines this trust is commingling, the mixing of client funds with a broker’s or agent’s personal or business funds.
Commingling is strictly prohibited under real estate law and is viewed as a serious breach of fiduciary duty. Understanding what it is, why it matters, and how to avoid it is essential for anyone working in the real estate industry. In this guide, we’ll cover the definition of commingling, real-world examples, legal consequences, and best practices for compliance.
An Overview of Commingling
What Is Commingling?
Commingling in real estate occurs when a broker or agent mixes client money with their own personal or business funds. This typically involves money meant to be held in trust, such as earnest money deposits or rent payments.
For example, if a buyer gives a broker an earnest money check for a home purchase, the broker is required to place that money into a designated trust or escrow account. If the broker instead deposits it into their business or personal account, that is commingling.
Why Commingling Is Illegal
Loss of Transparency: Clients cannot clearly see where their money is or how it is being used.
Misuse of Funds: Mixed funds could be accidentally or intentionally spent by the broker.
Breach of Fiduciary Duty: Brokers have a legal obligation to protect client funds.
Erosion of Trust: Even accidental commingling damages credibility and professionalism.
Regulators prohibit commingling to protect consumers and maintain integrity in the real estate industry.
Examples of Commingling in Real Estate
A broker deposits a client’s earnest money into their general business account instead of a trust account.
A property manager uses tenant security deposits to pay for office expenses.
An agent mixes rent collected for an owner with personal checking funds.
A broker delays depositing client checks and holds them in a desk drawer.
Even if the intent isn’t malicious, commingling is still a violation of law and professional standards.
Commingling vs. Conversion
While the terms are related, they are not the same:
Commingling: Mixing client funds with personal funds, even if not spent.
Conversion: The actual misuse or theft of client funds for personal gain.
Commingling can easily lead to conversion if client money is used improperly.
Legal and Professional Consequences
The penalties for commingling are severe and can include:
License Suspension or Revocation: Regulatory agencies often revoke licenses for repeated or serious offenses.
Fines: Significant monetary penalties may be imposed.
Civil Lawsuits: Clients can sue brokers for losses or damages.
Criminal Charges: In extreme cases, commingling may lead to fraud or embezzlement charges.
Loss of Reputation: Once trust is broken, it’s difficult for a broker to rebuild credibility in the industry.
Safeguards Against Commingling
Brokers and agents can avoid commingling by adopting clear practices:
Use Separate Trust Accounts: Maintain accounts solely for client funds, distinct from operating accounts.
Deposit Immediately: Place client funds into trust or escrow accounts promptly, often within 24–48 hours.
Maintain Accurate Records: Keep detailed ledgers showing deposits and withdrawals for each client.
Regular Reconciliation: Compare account balances with records monthly to ensure accuracy.
Follow State Laws: Each jurisdiction has specific trust account requirements that must be observed.
Use Escrow Services: In many cases, using a third-party escrow company provides extra safeguards.
How Commingling Affects Clients
When commingling occurs, clients face unnecessary risk. For example, if their deposit is lost or misused, they may lose their chance at purchasing a property or be forced into legal battles to recover their money. The uncertainty can also delay transactions and erode confidence in the entire process.
Frequently Asked Questions
What does commingling mean in real estate?
It refers to mixing client funds with a broker’s or agent’s personal or business funds.
Is commingling always illegal?
Yes, in real estate it is generally prohibited by law and regulations.
What’s the difference between commingling and conversion?
Commingling is mixing funds, while conversion is spending or misusing those funds.
Can commingling happen by accident?
Yes, but even accidental commingling is a violation and can result in penalties.
How do brokers prevent commingling?
By using separate trust accounts, accurate records, and timely deposits.
What are the consequences of commingling?
Penalties include fines, license revocation, lawsuits, and potential criminal charges.
Who monitors for commingling?
State real estate commissions and regulatory bodies oversee compliance.
Can clients sue if their funds are commingled?
Yes, clients can take civil action to recover damages.
Are escrow companies safer than brokers holding funds?
Often, yes—escrow companies specialize in handling client money securely.
Does commingling affect property managers too?
Yes, property managers must also keep tenant deposits and rental income separate.
Related Terms and Concepts
Trust Account: A bank account designated for holding client funds separately.
Escrow Account: An account managed by a neutral third party to hold funds during transactions.
Fiduciary Duty: The legal obligation to act in a client’s best interest.
Conversion: Unauthorized use of client funds for personal purposes.
Earnest Money: A deposit made by a buyer to demonstrate commitment to a purchase.
Security Deposit: Tenant money held by landlords or managers to cover damages or unpaid rent.
Wrap Up – Commingling
Commingling is one of the most serious violations in real estate, involving the mixing of client funds with personal or business accounts. Even when unintentional, it undermines trust, violates fiduciary duties, and exposes both clients and brokers to significant risks.
By maintaining separate trust accounts, keeping precise records, and adhering strictly to legal requirements, real estate professionals can avoid commingling and protect both their clients and their reputations. In 2025 and beyond, with heightened regulatory scrutiny and consumer awareness, handling client money responsibly isn’t just a legal obligation—it’s the cornerstone of professionalism in real estate.
