Records: what to keep, how long, ledgers, reconciliation

Bottom line: The Commission can ask to see your files and trust records, and "I lost it" is a violation by itself. Keep four years of files, keep a running journal and one ledger per owner, and do a monthly three-way check that proves the books match the bank.

How long to keep records

The statute makes it a ground for discipline to fail to keep, for a period of four years, the documents or records the Commission's rules require, or to fail to produce them on reasonable request (C.R.S. 12-10-217(1)(k)). The rule fills in the details: a broker and the brokerage firm must each keep transaction files for four years from the consummation date (the closing) of the transaction, or from the expiration date of a listing contract that never closed (4 CCR 725-1 Rule 6.20). So a listing that expires unsold on March 1, 2026 has its file kept until March 1, 2030.

Other four-year rules in the sources: continuing education certificates must be kept four years from the broker's most recent renewal, or from first licensing for a new broker (Rule 4.5(J); C.R.S. 12-10-217(1)(y)).

What goes in a transaction file? The Commission publishes a Transaction File Checklist on the Division of Real Estate's website, and Rule 6.20 says the required documents are the ones on that checklist. Study the current checklist. Think of it as the contract, the listing or buyer agreement, the brokerage disclosures, signed addenda and amendments, the closing statement, and your notes of required disclosures. A broker does not have to keep copies of existing public records, title commitments, loan applications, lender-required disclosures, or related papers from independent closing companies after the closing date (Rule 6.20). The closing statement itself must be accurate, complete, and signed by the broker, and delivered to the brokerage firm right after closing (Rule 6.19(A); C.R.S. 12-10-217(1)(j)).

The employing broker supervises this. Part of the "reasonable level of supervision" is reviewing every transaction file for the required documents (Rule 6.3(C)).

Electronic records are fine

An electronic record is one created or stored by electronic means, like a PDF in a document system. All required records may be kept electronically. They must be produced on request by the Commission or any principal party to the transaction, in a format that can still be retrieved and printed so it is legible (Rule 6.24). For trust records, the reconciliation reports, ledgers, journals, and bank statements may all be kept electronically (Rule 5.14(E)). If you change software, you must still be able to open the old files for four years.

The trust-account books: journal and ledger

The employing or independent broker must keep, at the firm's licensed place of business, a record system for each required trust account (Rule 5.14). Two parts matter most.

The journal is a running list, in date order, of every dollar received into or paid out of that account. For money coming in, each line shows: the date of receipt and deposit; who gave the money; the person and property it is for; the purpose; the amount; and the new cash balance. For money going out, each line shows: the date; the check number or electronic transfer record; the payee; a reference to the paperwork that proves the reason (an invoice, for instance); the amount; and the new cash balance (Rule 5.14(A)).

A ledger is a separate running list for each person whose money is in the account (each buyer's earnest money, each rental owner, each tenant's deposit). It has the same information as the journal but only for that one person (Rule 5.14(B)). Two hard rules: no ledger may ever have a negative balance, and the sum of all ledger balances must equal the journal balance after every entry is posted.

Branch offices that keep their own trust account must keep their own separate records, and the employing broker is responsible (Rule 5.19). Unless the firm and owner agree otherwise in writing, the books are kept on a cash basis, meaning you record money when it is actually received or paid (Rule 5.16).

Supporting papers: every deposit must show who paid, how much, what type of funds, and the property address. Every payout must be backed by a bid, invoice, contract, or similar document (Rule 5.15(B)). Reports to owners go out as the management agreement says, and if it is silent, within 30 days after the end of the month in which money moved (Rule 5.15(A)).

The monthly three-way reconciliation

Reconciliation means checking that two sets of numbers agree and explaining any difference. Every month the broker must do a three-way reconciliation and write a report showing that, on the same date, three numbers are equal: (1) the journal's cash balance, (2) the total of all the ledger balances, and (3) the reconciled bank balance. The report must be completed and kept each month (Rule 5.14(C)). The reconciled bank balance is the bank statement balance after adjusting for items the bank has not caught up with yet: add deposits in transit (money you deposited that is not yet on the statement) and subtract outstanding checks (checks you wrote that have not cleared).

Audits and investigations

The Commission may select a broker or firm for an audit, an official review of your records, or open an investigation after a complaint or on its own motion. You get written notice. You must send a written response by the deadline in the notice, with a complete answer, the transaction file, and any records requested. Missing that deadline is itself grounds for discipline, even if the underlying complaint goes nowhere. The Commission will grant a reasonable request for more time (Rule 6.25). You must produce any document reasonably needed for the audit (Rule 5.21). The Commission can also pursue failure to keep or produce records directly (C.R.S. 12-10-217(1)(h), (i), (k)).

Example with real numbers

Maple Street Realty has one sales escrow account. At month end, the books look like this.

• Bank statement ending balance: $48,350.
• Deposit in transit (earnest money deposited on the 30th, not yet on the statement): $1,500.
• Outstanding checks (a refund of $2,100 mailed on the 29th, not cashed yet): $2,100.

1. Reconciled bank balance: $48,350 + $1,500 - $2,100 = $47,750.
2. Journal balance (last line of the journal): $47,750.
3. Ledgers: Chen earnest money $15,000; Patel earnest money $12,500; Ortiz earnest money $20,250. Sum: $15,000 + $12,500 + $20,250 = $47,750.

All three equal $47,750. The report is signed, dated, and filed. Now suppose the bank charged a $25 fee on the 31st that nobody posted. The bank balance is $48,325 and the reconciled bank balance is $47,725, while the journal and ledgers still say $47,750. The three numbers disagree by $25. The fix: the firm puts $25 of its own money in (allowed for bank charges, Rule 5.14(D)), or records the fee against the right ledger if the agreement lets it, and posts it in both the journal and the ledger. Never let a shortage sit for next month.

The same books also show an error you must catch: if the Ortiz ledger had read -$300 at any time, that is a violation. A ledger may never go negative.