Kentucky Real Estate Broker Exam — All Questions

When a Kentucky brokerage receives earnest money, the principal broker must:

• a.Deposit it into the firm's operating account until closing
• b.Deposit it into an escrow (trust) account separate from the broker's own funds within the required time✓
• c.Let the sales associate keep it in a personal account
• d.Pay it directly to the seller on receipt

Kentucky requires client money such as earnest money to be held in an escrow (trust) account separate from the broker's business and personal funds and deposited within the time set by KREC regulations. Commingling escrow money with the broker's own funds is prohibited, and the principal broker is accountable for accurate escrow records.

A Kentucky principal broker who uses earnest money held in escrow to pay the brokerage's monthly rent has committed:

• a.A permitted use of idle funds
• b.A minor bookkeeping error
• c.An act that only the sales associate is responsible for
• d.Conversion of escrow funds, a serious violation subject to KREC discipline✓

Using escrow money to pay the brokerage's own expenses is conversion of client funds—one of the most serious violations of Kentucky license law. The principal broker is accountable for the escrow account and may face KREC discipline, including fines or license revocation, and potential liability to the parties. Escrow funds must be preserved for the transaction.

When a Kentucky transaction collapses and buyer and seller both claim the earnest money, the principal broker should:

• a.Keep the funds in escrow and disburse only per written agreement of the parties or a court order✓
• b.Release the money to whoever demands it first
• c.Keep the deposit as a cancellation fee for the firm
• d.Transfer the funds to the brokerage's operating account

Kentucky requires a broker holding disputed escrow money to keep it in the escrow account and disburse it only upon the written agreement of the parties or a court order (for example, through interpleader). The broker may not release the funds arbitrarily, keep them as a fee, or move them into operating funds while the dispute is unresolved.

A Kentucky principal broker's monthly review of the escrow account is intended primarily to:

• a.Increase the interest paid to the brokerage
• b.Eliminate the need for individual transaction records
• c.Confirm the account balances against the funds owed to each party and detect any shortage✓
• d.Permit temporary use of client funds for payroll

Reconciling the escrow account compares the bank balance to the total owed on each transaction so the broker can confirm the account holds exactly what is owed and catch errors or shortages promptly. It does not authorize using client funds, and per-transaction records remain required. This oversight is a core principal-broker duty.