PUTTING THE TRUST IN TRUST ACCOUNTS
Our blog earlier this month introduced an explanation of trust money and those types of transactions that are required to be deposited into a trust account. To recap, the most common examples of trust money that must be deposited into a trust account are:
- Residential rent
- Residential bonds
- Commercial rent
- Commercial bonds
- Strata levies
- Payment for goods, chattels and equipment
- Sale deposits
If you are purely a sales office only and do not deal with residential or commercial rents and strata levies then the story is a little different. Sales only offices do not require the use of trust accounts – but operating this way does have its own issues that need to be taken into consideration.
As a sales only office, you can use your acting solicitors trust account for sales transactions and transfer of funds. This has the benefit of minimising additional accounting and bookkeeping on your part, however it does come with its own limitations and risks.
IT’S ALL ABOUT RELATIONSHIPS
Utilising solicitor’s trust accounts throughout the sales process requires the development of good working relationships and the building and consolidation of trust between both parties.
The payment of commission works a little differently when not utilising your own trust account. For those with trust accounts, the process is straightforward. Upon settlement, you deduct the commission from the 10% deposit the purchaser pays to your office. The remainder you forward on to the vendor.
When utilising a solicitor’s trust account, you are at the mercy of their release of commission monies to you. For this reason, if you decide to not have your own trust account, it is important to develop good working relationships with solicitors you can trust. It will ensure the process is timely and smooth for everyone.
WHAT WORKS FOR ONE OFFICE MAY NOT SUIT ALL…
There are many sales only offices that do not hold a trust account. One office in particular that End of Month Angels spoke to has not held trust money for more than 10 years. In doing so they have eliminated the cost of software, audit fees and bookkeeping.
When asked if they have ever been duped from receiving a commission, their response was “not once. We generally use the same solicitor and we’ve known them for years”.
Would it work for every sales office? Probably not. But many agents believe that having a trust account is mandatory. It’s not. The answer is simply, yes if you’re receiving rents, bonds, etc. however not necessary if for sale deposits as the solicitors account may be utilised instead.
A FINAL THOUGHT
Before rushing to close your trust account, consider the risk of not receiving commission on settlement. You must have that level of trust in your solicitor or conveyancer, otherwise you can kiss your commission goodbye.
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~ Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 18 years industry experience. Don’t trust just anyone with your trust accounting. Trust End of Month Angels and get back to what you do best – growing your business.
DISCLAIMER: The information we provide in this blog is based on NSW legislation and may not be applicable in your state. Please check with your regulatory body before making any decisions about your trust account.