GREC REPORT S PR I N G I S S U E 2017 Retainer Fees ARE RETAINER FEES CONSIDERED TRUST FUNDS?


In early 2016, the Georgia Real Estate Commission (the “Commission”) had an investigative case that went to a hearing before an administrative law judge where the primary issue dealt with a topic of importance to real estate licensees. The question was how to treat a “retainer fee,” as that term is used in the Georgia REALTORS


® (“GAR”) F4 Exclusive Buyer Brokerage Agreement (the “Agreement”). The pertinent paragraph as cited in the Agreement is as follows:


RETAINER FEE. [Not to be collected in a SHORT SALE TRANSACTION.] In entering into this Agreement Buyer has paid Broker a Retainer Fee of $1,000.00 (amount inserted) which shall be non-refundable except as follows. In the event Buyer purchases real property in a transaction in which Broker is paid a commission, the Retainer Fee shall be refunded to Buyer by Broker at the closing of the trans- action. Otherwise, upon the expiration of this Agreement, the Retainer Fee shall be retained by Broker to partially off- set Broker’s cost and compensate Broker for Broker’s time in providing real estate brokerage services to Buyer.


The question was whether a “retainer fee” — as that term


is used in the Agreement— is considered “trust funds,” thus requiring it to be deposited and maintained in a broker’s trust account. The respondent argued that “retainer fees” were not


“trust funds” and could be spent immediately upon receipt from his buyer clients. With this belief, he could immediately cash the retainer checks or deposit them into his operating account. A summary of his argument is as follows:


1 The “retainer fee” was compensation for brokerage services or expense reimbursement and was not refundable to the buyer.


2 The Agreement does not state that “retainer fees” were “trust funds” or had to be held in a trust account.


3 Respondent was not holding the “retainer fee” for his client because the fee was for offsetting his cost or to compensate him for brokerage services rendered to the buyer.


4 Respondent could keep the “retainer fee” if the contract was terminated or if the sale closed. He argued that as a practicable matter, the “retainer fee” is not refunded to the buyer at closing as specified in the Agreement; however,


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it would be shown on the closing statement as a credit to the buyer from the real estate commission balance due to the broker.


5 Once the “retainer fee” is paid to him by the buyer, it immediately becomes a portion of his brokerage fee, or can be used by him as expense reimbursement and nonrefundable.


6 There is no law that says “all” funds of others that a broker collects must be escrowed.


The answer was that “retainer fees” are considered “trust


funds” by the Commission and therefore are required to be deposited and maintained in a broker’s trust account, even if used to pay the broker’s commission or expenses, and even if the retainer fees are nonrefundable. By the terms of the Agreement itself and under Georgia Real Estate License Law, “retainer fees” are not to be disbursed until the trans- action has been consummated or terminated. The funds are not immediately available for use by the broker. Therefore, the “retainer fees” become “trust funds” because they are funds to be held by the broker on behalf of his client until disbursement at a future date.


The reasoning of the Commission is as follows:


1 “Trust funds” are funds held by the broker as a temporary custodian on behalf of others as well as the broker himself under certain specified conditions.


2 Under O.C.G.A. §43-40-20, trust funds are required to be placed in a broker’s trust account. But what funds are considered “trust funds?” Funds such as down payments, earnest money deposits, security deposits, rents, and association fees are specifically defined in this Code section as “trust funds.” The term “retainer fees: is not specifically mentioned. However, the term “other trust funds” is also referenced in this Code section,


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