Kentucky Real Estate Salesperson Exam — All Questions

The principle of contribution states that the value of a component or improvement is measured by:

• a.The raw number of square feet of floor area or land area that the improvement happens to occupy
• b.The owner's personal emotional attachment to and sentimental feelings about that improvement
• c.Its original construction or installation cost in every case, dollar for dollar, with no exception
• d.How much it adds to the overall value of the property, not its cost✓

Under contribution, an improvement is worth the amount it adds to the whole property's market value, which may be more or less than its cost. This principle explains why some renovations do not fully return their expense, a key point in over-improvement analysis.

Under Internal Revenue Code Section 121, a qualifying homeowner may generally EXCLUDE from taxable capital gain:

• a.Up to $250,000 of gain if single, or $500,000 if married filing jointly✓
• b.Up to a full one million dollars of gain on any property at all, at any time and any frequency
• c.All gain on any and every investment or rental property the taxpayer happens to own and sell
• d.Absolutely nothing, because gain on the sale of a home is always fully and entirely taxable

Section 121 lets homeowners who owned and used the home as their principal residence for at least two of the prior five years exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). It applies to a primary residence, not to investment property.

Depreciation recapture on the sale of investment real estate means that:

• a.All of the depreciation deductions previously claimed are simply refunded to the investor in cash
• b.The investor is legally required to physically restore and rebuild the depreciated building itself
• c.Gain from prior depreciation may be taxed, often at a special rate✓
• d.No income tax is ever owed at all on the sale of a property that has previously been depreciated

When depreciated property is sold at a gain, the portion of gain due to depreciation deductions is 'recaptured' and taxed under special rules, reflecting the earlier tax benefit. It is a tax concept, not a requirement to rebuild, and it increases, not eliminates, tax on sale.

Which appraisal approach is generally MOST reliable for a special-purpose property, such as a church or public school, that rarely sells and earns no market income?

• a.The sales comparison approach, which depends on recent sales of similar comparable properties
• b.The income approach, which converts a property's market rental income into an indicated value
• c.The gross rent multiplier method, which relies on typical market rents that these lack entirely
• d.The cost approach✓

Special-purpose properties have few or no comparable sales and generate no market rent, so the cost approach (replacement cost new, less depreciation, plus land) is typically most reliable. Sales comparison lacks comparables and the income/GRM methods need market income these properties do not produce.

The four characteristics an item must have to possess value in the market, often remembered as DUST, are:

• a.Debt, Utility, Supply, and Taxes, a mix of unrelated financing and cost terms rather than value
• b.Demand, Utility, Scarcity, and Transferability✓
• c.Depreciation, Use, Sale, and Title, which describe stages of ownership rather than value itself
• d.Demand, Ownership, Scarcity, and Time, which swaps in two terms that are not part of the concept

For something to have market value it must have Demand (buyers who want it), Utility (usefulness), Scarcity (limited supply), and Transferability (the ability to convey it). The DUST acronym captures these four essentials of value.

Real estate licensees in Kentucky are regulated by:

• a.The county property valuation administrator
• b.The Kentucky Association of Realtors
• c.The Kentucky Real Estate Commission✓
• d.The Kentucky Department of Revenue

The Kentucky Real Estate Commission (KREC) licenses and disciplines brokers and sales associates under KRS Chapter 324. A trade association is a private membership organization and has no licensing authority, and taxing or assessment offices do not regulate licensees.

In Kentucky, a sales associate may perform licensed real estate activity only:

• a.After registering each transaction with the Commission
• b.Under the supervision of, and on behalf of, a principal broker✓
• c.Independently once the license is issued
• d.As a member of a real estate trade association

A Kentucky sales associate must be affiliated with and supervised by a principal broker and acts on that broker's behalf. Compensation flows through the principal broker; a sales associate may not accept payment directly from a buyer or seller. The principal broker is responsible for supervision and for handling client escrow funds.

The Kentucky Real Estate Education, Research, and Recovery Fund is used primarily to:

• a.Insure buyers against declines in property value
• b.Reimburse consumers who suffer an actual loss from certain licensee misconduct and cannot collect a judgment✓
• c.Fund the Commission's payroll
• d.Provide grants to real estate schools only

The Recovery Fund compensates members of the public who obtain a final judgment against a licensee for fraud, misrepresentation, or deceit in a licensed transaction and cannot otherwise collect, subject to statutory limits. When the fund pays a claim, the licensee's license is suspended until the fund is repaid. The fund also supports education and research but is not a general operating fund.

Kentucky requires a licensee to disclose in writing which party the licensee represents:

• a.Only after closing is complete
• b.Only if the consumer asks about representation
• c.Within 30 days after the transaction
• d.No later than when entering into a listing or buyer agreement, or before the buyer signs an offer to purchase✓

Kentucky requires written disclosure of the licensee's agency relationship at an early point in the relationship, such as when a listing or buyer representation agreement is signed or before a buyer signs an offer. Timely disclosure lets consumers understand who represents their interests before they commit or share confidential information.

In Kentucky, a licensee may act as a dual agent representing both the buyer and the seller only when:

• a.The principal broker approves it verbally
• b.Both parties give written consent to the dual agency✓
• c.The transaction is below a set price
• d.The two parties use different closing attorneys

Dual agency is permitted in Kentucky only with the informed written consent of both the buyer and the seller. Because a dual agent cannot fully advocate for either party, the licensee must not disclose one party's confidential negotiating information to the other and must obtain documented consent before proceeding.

In a typical Kentucky residential sale handled by a licensee, the seller is generally expected to complete the:

• a.Uniform Settlement Statement
• b.Certificate of occupancy
• c.Broker cooperation agreement
• d.Seller's Disclosure of Property Conditions form✓

The Kentucky Real Estate Commission provides a Seller's Disclosure of Property Conditions form, which sellers generally complete for residential transactions involving a licensee. The seller discloses known conditions of the property; the licensee must not assist in concealing known defects. Honest disclosure protects consumers and the licensee alike.

Escrow money a Kentucky sales associate receives from a buyer must be:

• a.Delivered promptly to the principal broker for deposit in the broker's escrow account✓
• b.Sent directly to the Kentucky Real Estate Commission
• c.Held by the sales associate until the seller responds
• d.Deposited in the sales associate's personal account until closing

Client escrow funds must be handled through the principal broker's escrow (trust) account. A sales associate who receives money must deliver it promptly to the principal broker, who must keep it separate from personal and business funds. Commingling or converting escrow money is a serious violation of Kentucky license law.

To qualify for a Kentucky real estate sales associate license, an applicant must complete approved pre-license education of:

• a.150 hours
• b.96 hours (or the equivalent college credit)✓
• c.60 hours
• d.40 hours

Kentucky requires 96 classroom hours of approved real estate pre-license education (or the equivalent in qualifying college credit) before an applicant may become licensed. The applicant must also pass the licensing examination and be associated with a principal broker to activate the license.

Along with a passing exam score and the criminal history check, an applicant for an initial Kentucky sales associate license must submit proof of:

• a.One full year of Kentucky residency
• b.A baccalaureate degree in real estate
• c.High school graduation or its equivalent✓
• d.Sponsorship by a state trade association

An initial sales associate applicant must file proof of high school graduation or its equivalent, proof of six academic credit hours of prelicense education, a national criminal history check, proof of errors and omissions coverage if the license will be active, and the $60 original license fee plus the $60 recovery fund fee. Kentucky imposes no residency requirement, no college degree requirement, and no trade-association membership. Cite: 201 KAR 11:210, Section 1(2) (eff. 12-16-2019).

KRS 324.046 states Kentucky's prelicense education requirement for a sales associate as:

• a.Six academic credit hours, or the equivalent✓
• b.Twelve academic credit hours in real estate courses
• c.Twenty-one academic credit hours, twelve in real estate
• d.Ninety-six academic credit hours of instruction

The statute is written in academic credit hours, not clock hours: a sales associate applicant needs six. Because the commission defines one academic credit hour as sixteen fifty-minute classroom hours, six credit hours is commonly quoted as ninety-six classroom hours, but ninety-six credit hours is not the requirement. Twenty-one credit hours is the broker requirement. Cite: KRS 324.046(2) (eff. July 13, 2004); 201 KAR 11:011, Section 1(1).

For Kentucky real estate education, one 'academic credit hour' means one college semester hour or:

• a.Ten clock hours of classroom attendance
• b.Twenty-four fifty-minute classroom hours
• c.Eight hours of supervised independent study
• d.Sixteen fifty-minute classroom hours✓

The commission's definitions section fixes the conversion at one college semester hour, or sixteen fifty-minute hours of actual classroom attendance. This is the multiplier that turns the statute's six credit hours for a sales associate into the familiar ninety-six hours of prelicense class time. Cite: 201 KAR 11:011, Section 1(1) (eff. 12-16-2019).

A passing score on a required portion of the Kentucky real estate licensing examination stays valid for:

• a.Thirty days
• b.Sixty days✓
• c.Six months
• d.One year

The applicant has sixty days from the passing score to complete the license application; after that the score is stale and the portion must be retaken. Cite: 201 KAR 11:210, Section 4(1) (eff. 12-16-2019).

An applicant who fails a required portion of the Kentucky licensing examination three times must:

• a.Wait thirty calendar days before retesting✓
• b.Retake the six-hour prelicense curriculum
• c.Petition the commission for a fourth attempt
• d.Wait one year and reapply as a new candidate

After a third failure on any required portion the applicant must wait at least thirty calendar days from the date of that third failed examination before retaking it, or the score is void. No waiver petition and no repeat of prelicense education is required. Cite: 201 KAR 11:210, Section 4(2) (eff. 12-16-2019).

A Kentucky real estate renewal cycle runs from April 1 of one year to March 31:

• a.Of the following year
• b.Three calendar years later
• c.Five calendar years later
• d.Two calendar years later✓

Kentucky licenses expire biennially and are renewed through the licensee's online services portal on or before March 31. The commission's definitions section states the renewal cycle explicitly as April 1 through March 31 two calendar years thereafter. Cite: KRS 324.090(1) (eff. January 1, 2020); 201 KAR 11:011, Section 1(35); 201 KAR 11:210, Section 8(1).

Before applying for an initial Kentucky broker's license, an applicant must have worked as a sales associate averaging at least twenty hours a week for:

• a.Twelve months
• b.Twenty-four months✓
• c.Thirty-six months
• d.Sixty months

KRS 324.046(1)(b) requires twenty-four months in the real estate business as a sales associate at an average of at least twenty hours per week, proven by a notarized statement from the principal broker or other documentation the commission accepts. The applicant must also hold twenty-one academic credit hours. Cite: KRS 324.046(1) (eff. July 13, 2004).

The commission may cut a Kentucky broker applicant's two-year experience requirement to one year if the applicant holds an associate degree in real estate, or a baccalaureate degree with a real estate major or minor. That reduction is:

• a.Automatic on proof of the degree
• b.Available only to Kentucky residents
• c.Discretionary with the commission✓
• d.Barred unless the degree is under five years old

The statute says the commission 'may' reduce the experience requirement from two years to one for an applicant with an associate degree in real estate or a baccalaureate degree with a real estate major or minor. It is a discretionary reduction, not an entitlement, and the statute attaches no residency or degree-age condition. Cite: KRS 324.046(4) (eff. July 13, 2004).

A person issued an initial Kentucky sales associate license must complete commission-approved post-license education of:

• a.Forty-eight hours within two years✓
• b.Twenty-four hours within one year
• c.Sixty hours within three years
• d.Ninety-six hours within two years

Post-license education is forty-eight classroom or online hours, taken within two years of receiving or activating the license unless the commission extends the deadline for good cause. A license that misses the deadline is automatically canceled the following day. Cite: KRS 324.085(2) (eff. July 15, 2026); KRS 324.010(19); 201 KAR 11:210, Section 14(2).

Kentucky's continuing education requirement for an actively licensed agent is twelve hours per biennial license period, of which:

• a.Three hours must be in real estate law
• b.All twelve hours must be in real estate law
• c.Six hours must be in real estate law✓
• d.No hours are tied to a specific subject

Six of the twelve biennial hours must be in real estate law, and six of the twelve must be completed in the first year of the period or the license is automatically canceled. In practice the commission's regulation collects this as six hours a year, three of them law. Cite: KRS 324.085(1) (eff. July 15, 2026); 201 KAR 11:210, Section 11(1).

The minimum errors and omissions coverage a Kentucky licensee must carry is:

• a.$50,000 per claim and a $500,000 annual aggregate
• b.$300,000 per claim and a $1,000,000 annual aggregate
• c.$100,000 per claim and a $300,000 annual aggregate
• d.$100,000 per claim and a $1,000,000 annual aggregate✓

Errors and omissions coverage is mandatory for every licensee except one on inactive status, and the commission sets the floor at $100,000 for any one claim and a $1,000,000 annual aggregate, in both cases excluding the cost of investigation and defense. Deductibles may not exceed $2,500 for judgment or settlement. Cite: KRS 324.395(1) (eff. June 27, 2019); 201 KAR 11:220, Sections 1 and 3 (eff. 12-16-2019).

An individual holding an active real estate license in another United States jurisdiction who applies for a Kentucky license must:

• a.Pass every portion of the Kentucky examination
• b.Pass the state law portion of the examination✓
• c.Complete Kentucky's full prelicense curriculum
• d.Open a place of business inside Kentucky

Kentucky's reciprocal route requires the application forms, the state law portion of the licensing examination, and the remaining prelicense qualifications; the applicant must also furnish a certification of good standing from every jurisdiction where he or she has been licensed. A nonresident broker need not keep a Kentucky office if the reciprocity agreement excuses it. Cite: KRS 324.141(1)-(2) (eff. June 25, 2009); KRS 324.115(2).

The largest fine the Kentucky Real Estate Commission may levy against a licensee for a violation is:

• a.$500
• b.$1,000✓
• c.$5,000
• d.$10,000

The sanctions the commission may order are suspension, revocation, a fine not to exceed $1,000, probation of up to twelve months, required completion of real estate coursework, and a formal or informal reprimand. A Circuit Court may add its own penalty in an unlicensed-practice prosecution, but the commission's own fine ceiling is $1,000. Cite: KRS 324.160(1) (eff. April 4, 2024).

A person whose Kentucky real estate license has been revoked may not be issued another license for:

• a.One year from the date of revocation
• b.Two years from the date of revocation
• c.Ten years from the date of revocation
• d.Five years from the date of revocation✓

Revocation carries a five-year bar. After the five years, relicensure is still discretionary with the commission, and the applicant must retake the appropriate examination and meet all current licensing requirements. Kentucky's definitions section states the same five-year minimum. Cite: KRS 324.220 (eff. July 14, 2000); KRS 324.010(18).

Under Kentucky law, a person who engages in real estate brokerage without a license commits:

• a.A Class A misdemeanor, then a Class D felony✓
• b.A violation punishable only by a commission fine
• c.A Class B misdemeanor for every offense
• d.A Class C felony for a first offense

Unlicensed brokerage is a Class A misdemeanor the first time and a Class D felony for any subsequent offense. A Circuit Court may add a fine of $100 to $1,000 or up to six months' imprisonment, plus the amount of any commission paid or received, and each transaction counts as a separate offense. Cite: KRS 324.990 (eff. July 13, 2004).

A Kentucky listing that sets a stipulated net price for the owner and lets the licensee keep the excess as compensation is:

• a.Permitted if the seller consents in writing
• b.Permitted only on commercial property
• c.Improper dealing, and a ground for discipline✓
• d.Permitted if the principal broker approves it

That arrangement is the statutory definition of a net listing, and KRS 324.160(7) makes obtaining, negotiating, or attempting to negotiate one improper dealing. There is no consent exception, no commercial carve-out and no broker-approval route. Cite: KRS 324.010(3) (eff. June 29, 2023); KRS 324.160(7) (eff. April 4, 2024).

A consumer complaint against a Kentucky licensee must be filed with the commission no more than one year from:

• a.The date the real estate transaction closed
• b.Actual knowledge of the cause of action✓
• c.The date the listing agreement was signed
• d.The date the commission opens its investigation

The one-year clock runs from actual knowledge of the cause of action or from the point circumstances would reasonably have put the complainant on notice, not from closing. The complaint must be sworn on KREC Form 300, notarized, and must allege a prima facie violation of KRS 324.160. The same one-year limit governs a recovery fund claim. Cite: 201 KAR 11:190, Section 1 (eff. 12-16-2019); KRS 324.420(6).

Once the commission serves a prima facie complaint on a Kentucky licensee, the licensee's notarized answer is due within:

• a.Twenty days✓
• b.Ten days
• c.Thirty days
• d.Sixty days

The licensee must return a notarized answer on the commission's form within twenty days and must deliver a copy to the complainant. The complainant may then file one reply within ten days, and the respondent one reply to that. Cite: KRS 324.151(3) (eff. June 25, 2009); 201 KAR 11:190, Section 2(5).

Payments from the Kentucky Real Estate Education, Research, and Recovery Fund are capped at:

• a.$10,000 per claimant and $25,000 against one licensee
• b.$25,000 per claimant and $100,000 against one licensee
• c.$50,000 per claimant, no aggregate cap
• d.$20,000 per claimant, $50,000 per licensee✓

The fund pays an aggregate not to exceed $20,000 per claimant, with combined payments to all claimants against any one licensee capped at $50,000, and only after the licensee has been found guilty of fraud and has refused to pay within twenty days of the final order. The commission must keep a minimum fund balance of $400,000. Cite: KRS 324.410(1)-(2) (eff. July 12, 2012).

After the recovery fund pays a claim, the Kentucky licensee responsible must reimburse the fund in full plus interest at:

• a.Six percent a year
• b.Eight percent a year
• c.Ten percent a year✓
• d.Twelve percent a year

The licensee's license is suspended, or may be permanently revoked, until the fund is reimbursed in full plus ten percent per annum, and the commission is subrogated to the aggrieved party's rights to the extent of its payment. Cite: KRS 324.420(3) and (5) (eff. June 27, 2019).

When an affiliated licensee violates KRS Chapter 324, the Kentucky principal broker:

• a.Is not primarily liable absent knowledge✓
• b.Is automatically liable for every act of an affiliate
• c.Is liable only if he or she shared the commission
• d.Has no responsibility for an affiliate's conduct

A principal broker is not held primarily liable for an affiliate's violation absent knowledge and a failure to prevent it. Separately, though, the principal broker and any designated manager must exercise adequate supervision over affiliates and employees, and failing to do so is itself a violation of the chapter. Cite: KRS 324.160(6) (eff. April 4, 2024).

If a Kentucky principal broker dies or becomes incapacitated, the commission may let an affiliated sales associate close the existing business for a temporary period not to exceed:

• a.Thirty days
• b.Six months✓
• c.Ninety days
• d.One year

The commission decides case by case and may permit one of the affiliated sales associates to complete and close the deceased or incapacitated broker's existing business for up to six months. The affiliate requesting that status files KREC Form 206. Cite: KRS 324.425 (eff. July 14, 2000); 201 KAR 11:210, Section 15.

A Kentucky licensee who fails to renew on time faces a late fine, before a new license is issued, not to exceed:

• a.$50
• b.$100
• c.$200✓
• d.$1,000

The statutory late-renewal fine is capped at $200, and not receiving a renewal form or a mail failure is no excuse. A license not renewed at the end of the biennial period reverts to expired status and may be reactivated before one year has lapsed if the delinquent fees are paid. Cite: KRS 324.090(2)-(3) (eff. January 1, 2020).

Kentucky requires the commission's Guide to Agency Relationships to reach a prospective client at the earliest of three moments. One of those moments is:

• a.After the buyer's offer has been accepted in writing
• b.At the first showing of a listed property
• c.When the closing statement is prepared
• d.Before signing an agency consent agreement✓

The Guide (KREC Form 400) goes out at the earliest of three moments: before a contemplated written agreement to provide brokerage services for compensation, before a contemplated oral agreement, or before signing an agency consent agreement. The licensee must solicit the prospective client's signature and, if it is refused, document the delivery attempt with a date and time. Cite: 201 KAR 11:121, Section 5 (eff. 5-2-2023).

The Guide to Agency Relationships and the Agency Consent Agreement are NOT required in Kentucky for:

• a.The sale of a condominium unit
• b.An auction or a commercial transaction✓
• c.The lease of a single-family residence
• d.A sale handled by a licensed builder-developer

Both requirements carry the same two exclusions: a sale of real estate at auction and a commercial transaction. A commercial transaction means one other than the sale of a single-family residential property, a multifamily property of four units or less, or a single-family residential lot, so condominiums, house leases and builder-developer sales are not excluded. Cite: 201 KAR 11:121, Sections 5(4) and 6(4) (eff. 5-2-2023); 201 KAR 11:011, Section 1(10).

If the agency relationship a Kentucky licensee originally established with a client later changes, the licensee must:

• a.Note the change in the transaction file
• b.Report the change to the commission within ten days
• c.Obtain written consent to an updated agreement✓
• d.Tell the principal broker within ten days

The Agency Consent Agreement records the specific agency relationship proposed between the brokerage and the client, and it must be updated with fresh written consent whenever that relationship changes. The form of agency in the most recent agreement ends when the agreed services are provided or at closing. Cite: 201 KAR 11:121, Sections 6(3) and 6(5) (eff. 5-2-2023).

When a Kentucky principal broker sets up designated agency in a transaction, the principal broker:

• a.May not designate himself or herself as a designated agent✓
• b.May designate himself or herself for the seller only
• c.Must designate himself or herself for both parties
• d.May designate an unlicensed assistant to one party

The designation must be made in writing and communicated to all affiliated licensees, each designated agent must inform and obtain the consent of the party being represented, and the statute flatly bars the principal broker from designating himself or herself. A designated agent must be a licensee. Cite: KRS 324.121(1) (eff. June 25, 2009); 201 KAR 11:011, Section 1(19).

In a Kentucky brokerage practicing designated agency where one licensee represents the seller and another represents the buyer in the same sale, the dual agent is:

• a.Every licensee affiliated with the company
• b.Each of the two designated agents
• c.Nobody, because designated agency is not dual agency
• d.Only the principal broker or a designated manager✓

Designating separate licensees for buyer and seller confines dual agency to the principal broker or a designated manager working under that broker's direction, in a limited fiduciary capacity. That person must keep each party's confidential information in an individual file and may not disclose it to the other side. Cite: KRS 324.121(2) (eff. June 25, 2009); 201 KAR 11:011, Section 1(21).

Kentucky law provides that information known to one consumer, the principal broker, the designated manager, the firm, or its licensees in a real estate transaction:

• a.Is imputed to every licensee in the firm
• b.Is imputed only inside a designated agency firm
• c.Is not imputed as a matter of law to the others✓
• d.Is imputed to the cooperating brokerage as well

KRS 324.121(3) shuts off imputed knowledge: no exchange of information or knowledge between or among consumers, the principal broker, the designated manager, the firm or the licensees is imputed as a matter of law in any real estate transaction. That is what makes in-house designated agency workable. Cite: KRS 324.121(3) (eff. June 25, 2009).

Which of these is NOT one of the fiduciary duties a Kentucky licensee owes a client?

• a.Obedience to the client's lawful instructions
• b.Advancing funds on the client's behalf✓
• c.Reasonable care and diligence
• d.Accounting to the client for money

The commission lists six fiduciary duties to a client: loyalty, obedience to lawful instructions, disclosure, confidentiality, reasonable care and diligence, and accounting. Failing any of them is improper conduct. Advancing money on the client's behalf is not among them. Cite: 201 KAR 11:121, Section 1(1)(d) (eff. 5-2-2023).

The duties a Kentucky licensee owes a prospective client are:

• a.Good faith, fair dealing, and confidentiality✓
• b.Good faith and fair dealing only
• c.The full set of fiduciary duties owed a client
• d.No duty until an agreement is signed

A prospective client is owed good faith, fair dealing and the duty of confidentiality. A consumer, by contrast, is owed only good faith and fair dealing, and a client is owed the full six fiduciary duties. Cite: 201 KAR 11:121, Section 1(1)(e)-(f) (eff. 5-2-2023); 201 KAR 11:011, Section 1(14) and (34).

A Kentucky licensee's fiduciary duty of confidentiality, where it is owed:

• a.Ends when the agency agreement terminates
• b.Ends at the closing of the transaction
• c.Ends one year after the agreement terminates
• d.Survives termination of the agreement✓

The regulation states expressly that the fiduciary duty of confidentiality, if owed, survives termination of the Agency Consent Agreement. Confidential information is information that could materially compromise a client's or prospective client's negotiating position and is not required by law to be disclosed. Cite: 201 KAR 11:121, Section 1(2) (eff. 5-2-2023); 201 KAR 11:011, Section 1(13).

A Kentucky principal broker's escrow account holding contract deposits must be:

• a.Kept inside Kentucky and identified in writing✓
• b.Held at any federally insured United States bank
• c.Registered with the Kentucky Department of Revenue
• d.Combined with the company's operating account

Escrow accounts must be separate from the individual or office account, maintained within the State of Kentucky, and identified to the commission in writing. The broker may place a deposit in an interest-bearing account, with the interest going to whoever the parties agree to in writing, and signs a permit letting the commission audit the accounts. Cite: KRS 324.111(1)-(2) and (5) (eff. June 25, 2009).

A contract deposit must reach the Kentucky principal broker's escrow account 'without unreasonable delay,' which the commission defines as within:

• a.Twenty-four hours of receipt
• b.Five business days of receipt
• c.Three business days of receipt✓
• d.Ten calendar days of receipt

For contract deposits or money belonging to others, 'without unreasonable delay' means within three business days of receipt by the principal broker or an affiliated licensee. A contract deposit is earnest money delivered after the offer or counteroffer is accepted and an executory contract exists. Cite: 201 KAR 11:011, Section 1(47)(a) and (16) (eff. 12-16-2019); KRS 324.111(1).

A Kentucky principal broker must notify the commission in writing of an escrow account overdraft, other than one caused by a bank service charge, if it is not corrected within:

• a.Twenty-four hours of the broker receiving notice
• b.Seventy-two hours of the broker receiving notice✓
• c.Ten days of the broker receiving notice
• d.Thirty days of the broker receiving notice

The statute gives the broker seventy-two hours from notice of the overdraft to fix it before a written report to the commission is required. Escrow violations can also trigger an emergency order: two or more alleged violations, or a single one over $500, warrants emergency action and the account can be frozen. Cite: KRS 324.111(1) (eff. June 25, 2009); 201 KAR 11:190, Section 7(2).

When a party to a Kentucky contract says it will not perform, the broker may start the deposit release process by certified mail and then distribute the deposit if no release or litigation follows within:

• a.Fifteen days of the mailing date
• b.Thirty days of the mailing date
• c.Ninety days of the mailing date
• d.Sixty days of the mailing date✓

The broker notifies all parties at their last known address by certified mail that the deposit will go to the party named in the letter unless everyone signs a written mutual release or someone starts litigation within sixty days of the mailing date. Releasing on that basis carries no penalty and no civil liability in Kentucky courts. Cite: KRS 324.111(6) (eff. June 25, 2009).

A Kentucky principal broker must preserve the transaction file, including the agency forms and the seller's disclosure, for:

• a.One year after the transaction closes or fails
• b.Three years after the transaction closes or fails
• c.Five years after the transaction closes or fails✓
• d.Seven years after the transaction closes or fails

The principal broker keeps one file per transaction, in hard copy or digital form, for five years following consummation or failure, containing the written offers, the record of money in and out, the listing and sales contracts or leases, closing sheets, the Seller's Disclosure of Property Condition, the Agency Consent Agreement, the Guide to Agency Relationships, and any timeshare records. Property management records are kept five years as well. Cite: 201 KAR 11:121, Section 9(1)-(2) (eff. 5-2-2023).