RECAD in Alabama, trust funds and closing statements
RECAD, the Real Estate Consumers Agency and Disclosure Act, decides what a licensee is to each consumer, and it changed on October 1, 2025. With trust funds and the estimated closing statement it is 6 of the 40 state questions, few but rewritten recently.
Updated Oct 24, 2026 · Not affiliated with any state commission or test provider.
6state questions
Oct 1, 2025RECAD amended
7 business daysto disburse after closing
12questions on this page
What the areas cover
Outline areas VII–IX, salesperson counts:
IX RECAD (3): single agent, designated single agent, dual agent, transaction facilitator; the disclosure form; duties to all parties.
VIII Trust funds (2): where and when money is deposited, disbursed and accounted for.
VII Estimated closing statement (1): when it is given and who signs.
RECAD after October 1, 2025
Facilitator by default. From first contact until a broker signs a written agency agreement, the licensee is a transaction facilitator (the term that replaced “transaction broker”), not an agent. Agency cannot be assumed or implied without a written bilateral agreement signed by the licensee and the consumer (§34-27-82(b)).
Disclosure before service. The brokerage services form goes to the consumer as soon as reasonably possible, before any confidential information is shared and before any brokerage service, which includes showing a property. A seller’s agent hosting an open house is the exception (§34-27-82(c)).
Written agreement before listing or offering. A showing needs no agreement; listing a property or submitting an offer for compensation does.
No signature required. The consumer does not have to sign the form; if they decline, the licensee notes it on the form (r. 790-X-3-.13, form effective Feb 14, 2026).
Dual agent or designated single agent
A dual agent represents buyer and seller in one transaction, only with the written, informed consent of all of them. When two licensees under the same qualifying broker each represent a different party, the broker can designate them single agents in writing; they are not dual agents. The general agency principles behind these roles are on the national agency page.
12 RECAD and trust fund questions
0 of 12 answered · 0 correct
Question 1 of 12 · RECAD, trust funds and closing statements · 6 items
An audit reveals a broker's trust account balance is correct, but there are no check registers or monthly reconciliation statements. This situation constitutes:
Answer and explanations
Incorrect: Bank statements are one item; registers, ledgers and reconciliations are also required.
Incorrect: Missing records are a violation with or without a loss.
Incorrect: Trust account records are a license-law duty the Commission audits.
Incorrect: The rule is about records, not only about the balance.
Correct: A broker must keep a complete record of trust funds and have check registers and recent reconciliations available for inspection; a correct balance does not replace them.
Question 2 of 12 · RECAD, trust funds and closing statements · 6 items
A salesperson fails to turn over earnest money, and the qualifying broker does not discover the omission because they do not review trust account records. In this scenario, the broker is:
Answer and explanations
Incorrect: The rules expressly treat this as a broker violation.
Correct: A qualifying broker who does not oversee how licensees handle others' money fails the duty to supervise and is answerable to the Commission.
Incorrect: Another person's misconduct does not shield the broker from the broker's own duty.
Incorrect: Firing the salesperson afterward does not erase the broker's own supervision failure.
Incorrect: The broker faces discipline, not only a money claim.
Question 3 of 12 · RECAD, trust funds and closing statements · 6 items
A licensee shows a property to a prospective buyer before giving the buyer the Real Estate Brokerage Services Disclosure. The buyer later signs a representation agreement. Which regulatory outcome is most likely?
Answer and explanations
Incorrect: Signing later does not cure a disclosure that came too late.
Incorrect: That was the old reading; HB382 named showings as a brokerage service.
Correct: Since October 1, 2025, the disclosure must be given before any brokerage service, and showing a property to a buyer is expressly one.
Incorrect: The Commission chooses among fines, reprimands, education, suspension and revocation; nothing is automatic.
Incorrect: The form is due far earlier: before confidential information is shared and before any brokerage service.
Question 4 of 12 · RECAD, trust funds and closing statements · 6 items
A property management company's agreement with landlord Martinez terminates effective June 15. On that date, the company holds $4,800 in tenant security deposits, $2,400 in prepaid July rent, and $600 in pet deposits. The new management company requests transfer of all funds. What action must the qualifying broker take to comply with AREC rules?
Answer and explanations
Incorrect: Holding funds 30 days for disputes is not allowed; the seven-day rule controls.
Incorrect: Tenants' deposits are not a source for the broker's management fees.
Correct: On a management termination the broker must account for deposits, prepaid rent and other escrows and pay them to the landlord or new manager within seven business days.
Incorrect: Fifteen business days is longer than the rule allows, and no extra forms are a condition.
Incorrect: Prepaid rent is part of the same transfer, not something to send later.
Question 5 of 12 · RECAD, trust funds and closing statements · 6 items
How long must a broker retain trust account records according to Alabama regulations?
Answer and explanations
Incorrect: One year is too short for trust records.
Correct: A complete record of others' funds, showing whose money it is and when it moved, must be kept at least three years.
Incorrect: Seven years is not the license-law period, and it is not counted from licensure.
Incorrect: Records must outlast the deal by years.
Question 6 of 12 · RECAD, trust funds and closing statements · 6 items
What is the primary purpose of the RECAD law in Alabama?
Answer and explanations
Incorrect: RECAD allows dual agency with all parties' written, informed consent.
Incorrect: The form is a disclosure, not a contract; agency still needs a written agreement.
Incorrect: RECAD says nothing about commission rates.
Correct: RECAD requires a Commission-written form that explains the types of brokerage service a licensee may provide, before services begin.
Question 7 of 12 · RECAD, trust funds and closing statements · 6 items
A broker keeps one combined ledger for all property owners' funds, with no record showing whose money is whose. Which duty does this break?
Answer and explanations
Incorrect: The disclosure form has nothing to do with trust ledgers.
Incorrect: Nothing in the facts says where the account is.
Correct: The trust record must show to whom the money belongs, the dates of deposit and withdrawal, and other details.
Incorrect: The disbursement deadline is a different duty, not raised here.
Question 8 of 12 · RECAD, trust funds and closing statements · 6 items
Qualifying broker Martinez opens a trust account at an FDIC-insured online bank headquartered in Delaware with no physical branch presence in Alabama. The account is used for Alabama client earnest money deposits. What compliance issue exists and what must Martinez do?
Answer and explanations
Correct: Trust money must be held in a separate federally insured account at a financial institution located in Alabama; an online-only Delaware bank does not qualify.
Incorrect: Insurance is one requirement; the Alabama location is another.
Incorrect: The location rule is in Alabama law, and no registration fixes it.
Incorrect: A correspondent relationship does not put the account in Alabama.
Incorrect: Client consent cannot waive the location rule.
Question 9 of 12 · RECAD, trust funds and closing statements · 6 items
In a single-family home sale, a licensee prepares a buyer's written offer. What does the Commission's estimated closing statement rule require?
Answer and explanations
Incorrect: Cash deals need it too; the lender's Loan Estimate is a separate federal form.
Correct: Each time a written offer or counteroffer is prepared or presented, the licensee gives a complete estimate of costs, and the client or customer signs and dates it.
Incorrect: The estimate is mandatory, not on request.
Incorrect: It is due with each written offer and counteroffer, not once at the end.
Incorrect: The duty is the licensee's.
Question 10 of 12 · RECAD, trust funds and closing statements · 6 items
If a consumer refuses to sign the RECAD form, what should the licensee do?
Answer and explanations
Correct: Consumers do not have to sign; if one declines, the licensee notes that on the form.
Incorrect: Refusing to sign is the consumer's right and no reason to end service.
Incorrect: The consumer has done nothing wrong.
Incorrect: The form must still be given; only the signature is optional.
Question 11 of 12 · RECAD, trust funds and closing statements · 6 items
Two licensees under the same qualifying broker have separate agency agreements, one with the seller and one with the buyer in the same sale. The broker designates each as a single agent for that client, in writing. These licensees are:
Answer and explanations
Incorrect: Each has a written agency agreement, so neither is a facilitator to their own client.
Incorrect: Consent is required for a dual agent, but a designated single agent is by law not one.
Correct: Alabama lets the qualifying broker designate them as single agents for their own clients; the law says a designated single agent is not a dual agent.
Incorrect: Each represents a client directly as that client's single agent.
Question 12 of 12 · RECAD, trust funds and closing statements · 6 items
A qualifying broker lets each salesperson open and run a personal escrow account for earnest money from that salesperson's buyers. Under Alabama rules this is:
Answer and explanations
Incorrect: Review does not fix the structure; the broker has to hold and control the account.
Incorrect: Federal insurance is required, but it does not let salespersons hold trust money.
Correct: Trust accounts must be accounts where the qualifying broker is the bank's customer and an authorized signer, and salespersons must turn funds over to the broker immediately.
Incorrect: The violation exists whether or not anyone complains.
Answer every question to see your score
Trust funds, step by step
Hand it over. A salesperson pays trust money to the qualifying broker immediately on receipt.
Deposit. Cash goes in immediately. An earnest-money check is deposited when the contract says; if the contract is silent, when the offer becomes a contract.
Where. A separate federally insured account at a financial institution located in Alabama, where the qualifying broker is a customer and a signer.
Disburse. Within 7 business days after the transaction closes. If it falls through or the parties disagree, only on a written agreement signed by all parties or a court order; the broker may also interplead the money into court.
In a single-family residential sale, the licensee gives the client or customer an estimated closing statement each time they present or prepare a written offer or counteroffer. The consumer acknowledges it with a dated signature, and the licensee keeps it in the qualifying broker’s file (r. 790-X-3-.04).
The Real Estate Consumers Agency and Disclosure Act, Article 4 of the license law (sections 34-27-80 to 34-27-88 of the Code) that defines brokerage services and the duties licensees owe.
When must the Alabama RECAD form be given?
As soon as reasonably possible, and at the latest before any brokerage service, including showing a property, and before any confidential information is disclosed. An open house held by the seller’s agent is exempt.
Does a buyer have to sign a brokerage agreement before a showing?
No. A written brokerage agreement is required before a licensee lists a property or submits an offer for compensation, not before a showing (§34-27-82(e)).