Operating funds are funds that our property management and real estate business uses to fund and manage our business. Escrow funds are monies that Nesbitt Realty is holding on behalf of tenants, landlords, buyers and sellers. At any given time, Nesbitt Realty has hundreds of thousands of dollars in escrow accounts.
The Commonwealth of Virginia requires that all real estate licensees manage escrow funds in a particular manner. Most importantly the Commonwealth requires that escrow funds are properly accounted for at all times. In additional all escrow funds must be kept separate from operating funds. The biggest portion of our escrow funds are tenant security deposits, but also hold deposits for buyers (and sometimes sellers) as we'll as contingency reserve funds for landlords.
A contingency reserve account is money that is held in savings / escrow to pay for maintenance and other incidentals that occur during property management. Although the money is in our escrow account, the money belongs to the landlord. If / when the property management ends, that money is promptly returned to the landlord.
When a repair bill arises we use money in the contingency reserve account to pay that bill. When bills are paid in this manner the account is depleted. When the account is missing funds, at the end of the month when new rents are paid, Nesbitt Realty replenishes the count with money withheld from this rent. As property managers, Nesbitt Realty prepares a statement each month to show if/when money is depleted and how/when money is replenished into the contingency reserve account.
Landlords do not pay us money to set up the contingency reserve account. Instead, Nesbitt Realty withholds money from the first month of rent in order to set up the account.