The sponsoring broker is legally responsible for every act performed by their sponsored Sales Agents in connection with real estate brokerage. TREC rules require brokers to provide "adequate supervision" — meaning written office policies and procedures, regular training, and active oversight of contracts, disclosures, and client communications. A broker cannot escape discipline by claiming ignorance of an agent's misconduct if the evidence shows the broker failed to supervise.
Real-world example: Broker Maria sponsors 15 agents. She has no written policies, holds no office meetings, and has never reviewed an agent's transaction file. One of her agents, without her knowledge, collects earnest money and deposits it into the agent's personal bank account. TREC investigates and disciplines both the agent (for conversion) AND Maria (for inadequate supervision). Maria's defense that she "didn't know" fails because she had no oversight system in place.
When a broker's license is revoked, suspended, or the broker dies, sponsored agents have 10 days to find a new sponsoring broker — otherwise their licenses go inactive. This rule applies regardless of any pending transactions.
Brokers who receive client funds — earnest money, option fees held in trust, security deposits for managed properties — must deposit those funds into a separate trust account (also called an escrow account) that is kept entirely separate from the broker's operating funds.
When a corporation, LLC, or partnership holds a real estate broker license, TREC requires the entity to name one individual as the designated broker who is personally responsible for ensuring all agents and affiliated brokers comply with TRELA and TREC rules. If the designated broker's license lapses, the entity's license also lapses until a replacement is designated.
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Quiz Questions:
Q1. A broker who fails to establish written policies and procedures for his sponsored agents, and whose agent subsequently commits a disclosure violation, faces what potential consequence from TREC?
A) No consequence, because the agent — not the broker — committed the violation B) Disciplinary action for failing to provide adequate supervision of the agent C) Automatic license revocation because any agent violation triggers broker revocation D) A mandatory refresher course but no formal disciplinary action
Answer: B — Adequate supervision is the broker's non-delegable duty. Failing to have policies, train agents, or review their work creates independent broker liability when an agent's misconduct is the foreseeable result of inadequate oversight.
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Q2. A Texas broker receives earnest money from a buyer on Friday, October 3rd. The contract was fully executed (effective date) on Thursday, October 2nd. What is the latest date the broker may deposit the earnest money?
A) October 2nd (same day as contract execution) B) October 4th (second business day after execution — Saturday is not a business day, so Monday October 6th) C) October 6th (Monday — second business day after execution when the weekend is excluded) D) October 7th (five business days from receipt)
Answer: C — Deposit must occur by the close of business on the second business day after execution. If the effective date is Thursday October 2nd, the first business day after is Friday October 3rd, and the second business day (excluding the weekend) is Monday October 6th.
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Q3. A licensed LLC holds a Texas real estate broker license. The designated broker for the LLC unexpectedly dies. What happens to the LLC's broker license?
A) The LLC's license remains active for 90 days to allow transition planning B) The LLC's license lapses until a new designated broker is named and the license is updated with TREC C) The LLC's license automatically transfers to the next most senior managing agent D) The LLC's license is immediately revoked permanently
Answer: B — The LLC's license lapses when the designated broker's license terminates (whether by death, expiration, or revocation). The LLC must appoint a replacement designated broker with an active individual broker license and update its TREC filing to reactivate the entity license.
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Q4. A broker deposits a buyer's $10,000 earnest money check into her firm's general operating account because "it's easier to track from one account." TREC audits the trust account and discovers no separate escrow account exists. This conduct is best described as:
A) An administrative oversight with no disciplinary consequences B) Commingling — a serious trust account violation C) Conversion — using client funds for personal benefit D) A minor disclosure violation with a maximum $500 fine
Answer: B — Depositing client funds into the broker's operating account (rather than a separate trust account) is commingling, regardless of intent. The broker did not use the money personally, so it is not conversion, but commingling alone is grounds for license discipline including potential revocation.
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Q5. Which of the following statements about broker trust accounts is CORRECT under TREC rules?
A) Brokers may maintain a small "cushion" of personal funds in the trust account to cover bank fees B) Client funds may be deposited in the broker's operating account if they are clearly labeled as client funds C) Trust account funds belonging to clients may only be released with written authorization from both parties or a court order D) TREC will adjudicate disputes over earnest money and direct the broker on how to disburse funds
Answer: C — The broker holding earnest money cannot unilaterally decide to release it when the parties dispute ownership. Release requires a written agreement signed by both parties, a court order, or the specific conditions in the contract being satisfied. TREC does not adjudicate earnest money disputes — that is a civil matter.