Everyone in the real estate industry groans at the thought of trust accounts. But they’re not just the bane of existence for the agency sector, they’re also a pain point for the public, state regulators, and government. So why are trust accounts so exasperating and is there a world that exists without them?
Trust Accounts in the Real Estate Industry
In Australia today, there are some 10,000 licensed agents who can open and manage a trust account dealing with clients’ funds. If an agency manages 1,000 rental properties, then they have potentially $2m passing through their rent trust account every… single… month.
That’s $2m of clients’ money, with multiple people having access to the account. On a national level there are possibly 30,000 individuals who have access to these trust funds if they choose.
On the compliance front, agencies are generally well behind the current legislation. The recent Anti Money Laundering and Counter Terrorism Financing Act (AML/CTF) outlines obligations for those facilitating the transfer of money. In simple terms, the Act states that you must ‘know your customer’ and make sure they are who they say they are. Whilst the property management sector routinely does a 100-point check on every tenant, they rarely 100-point check the landlord to whom they are transferring funds, and that’s now illegal.
Another compliance issue lies with holding credit card details of your clients. Many offices hold card details of tenants and landlords within their trust account management software – but according to the Payment Card Industry Data Security Standard (PCI DSS), that’s also now illegal. If there is a fraud committed and you are found storing this data without PCI compliance, you can be fined over $100,000 per card you have stored. If your agency manages 1,000 properties… well, you can do the math on that one.
The History of Trust Accounts
The real estate trust account system and the regulations that go with it are the result of how the industry started back in the days of the Great Depression in the 1920’s. Back then, agents went door to door collecting money, which they then held in their office till it was collected by the landlords. You can imagine the issues that arose from this system.
The government eventually stepped in and formed regulations on how the money should be managed and instituted penalties for non-compliance as well as licencing requirements.
So, the Future?
Not only are Trust Accounts risky for the Agent, but they are also cumbersome and expensive to operate. You normally require a specialist Trust Manager and incur a raft of bank charges as well as audit fees. If one of your staff defrauds the account you will be required to make up the shortfall. The indemnity fund only kicks in (to reimburse the client) if the business fails and you can’t make good on the loss.
The simple solution? Remove the need for an agency to have a rent trust account. Trust accounts were designed to fix a problem in the 1920’s, so almost 100 years later, why are we applying the same logic? Technology has grown and the property industry is growing with it.
Trust accounts can be replaced by removing the need for an agency to hold customers’ funds. If we remove the agency step in the handling of the funds, we can remove the need for a trust account. So how do we do that? The answer is simple - we get the funds to go straight from the tenant to whoever the payment belongs to, whether that be the landlord, a bill, a creditor or a tradie.
How OurProperty Can Help
The new fully automated Payment Platform being released by OurProperty.com.au collects the rental from the tenant and then manages and pays the disbursements (exactly as the landlord and their property manager require), all in real time.
All parties benefit from the new system: the landlord gets payment in real time; the tenant has a new level of convenience with the ability to preset the way they prefer to pay their rent; plus there’s flexibility for them to change their payment method at any time. The agent also saves a huge amount of time and expense and avoids the risk of costly internal fraud.
The new way of doing business is here – it’s automated – and it provides the best customer experience possible for everyone involved.
OurProperty.com.au expect to release this exciting product to existing customer in March 2019.