Ky Real Estate Test Ch 2 part 2 Flashcards
1
Q
No one can practice real estate brokerage in Kentucky unless he/she holds a license unless they meet what receptions?
A
- A person who owns the property being sold, purchased, or leased. In addition to the owner, his/her regular employees may also sell, purchase, or lease property owned by him/her.
- Another exception to licensing is someone acting under a power of attorney.
- An attorney-at-law who is performing his/her duties as an attorney.
- A receiver, trustee in bankruptcy, administrator, executor, or anyone else operating under a court order can deal with real estate as part of his/her duties under that court order. All of these individuals have been appointed by a Judge to do whatever they are doing with the real estate. As long as they are performing the tasks included in the court order, a real estate license is not necessary. This exception applies to their regular employees as well.
- Exception for the principal broker who has been retained by the owner to manage the property. If the principal broker is hired to manage a property, the principal broker can have his regular salaried employee show the property to prospective tenants. The compensation to the employee cannot be based on whether or not the person shown the unit leases it. A regular salaried employee cannot be paid based on result. The second exception is for a person who receives as her primary compensation the use of a rental unit. For example, if an owner owns an apartment building and pays the person managing the building by giving her a unit to use as her residence, she does not need a real estate license.
- A person running a business that only compiles and categorizes information that is used to advertise the availability of property for lease does not need a real estate license. This information may be furnished to prospective tenants for a fee. People who qualify for this exception do not show the property and do not prepare documents relating to its lease or rental.
This exception to licensing is a very narrow exception and only applies to commercial real estate transactions. - A non-licensed person under the supervision of a licensed real estate broker who contacts the public for the purpose of setting an appointment for the broker to meet with them regarding buying or selling property and giving out general public information specifically authorized by the broker.”
2
Q
D: Regular Employee
A
A regular employee is a person who is employed, receives a fixed salary, and has an income tax and social security (FICA) taxes withheld from his/her paycheck.
Regular employees must follow the instructions of the employer and cannot act as independent contractors.
Employees generally have fixed work hours and must follow the instructions of the employer.
The pay received for services cannot be based on performance or specific transactions. Oddly enough, the regular employee does not have to have any education or training in real estate.
3
Q
D: Power of Attorney
A
A power of attorney is a document that authorizes one person, known as an attorney-in-fact, to act on behalf of another person known as a principal.
If someone is acting as an attorney-in-fact when purchasing, selling, leasing, or otherwise dealing in the principal’s real estate, he/she does not have to have a real estate license.
Basically, the person acting as attorney-in-fact can do anything with the owner’s real estate that the owner himself/herself could do with it.
4
Q
D: Commercial Real Estate
A
- Used primarily for sales, retail, wholesale, office, research, institutional, warehouse, manufacturing, or industrial purpose.
- Lawfully used primarily for multifamily residential purposes involving 5 or more dwelling units.
- Zoned for business or commercial use by a planning unit of the local government. This statute specifically excludes residential transactions of less than 5 units.
5
Q
Ture or False & Why
While the sellers have their house on the market, they are going to be out of the country for a month. They have given their neighbor a power of attorney to accept offers on the property during their absence. The neighbor can only do this if he/she has a license.
A
False
One of the exceptions for having a license is someone acting under a power of attorney.
6
Q
Ture or False & Why
Mr. Smith is a licensed property manager for apartment buildings. He has an empty apartment and he has asked his secretary, who he pays an hourly salary, to show the property. His secretary does not need a license to show the property.
A
True
7
Q
Ture or False & Why
The sellers have filed bankruptcy and the bankruptcy court has ordered the house sold by the Bankruptcy Trustee. The Trustee needs a real estate license.
A
False
As long as the person is acting under a Court Order, he/she does not need a real estate license to broker real estate.
8
Q
Ture or False & Why
In Module 1, you reviewed the referral fee form which was number M104.
A
False
The form is actually number M101.
9
Q
Ture or False & Why
The person referring buyers and sellers, landlords and tenants, to real estate brokers for assistance can always be compensated.
A
False
Compensation paid or received for referrals is illegal unless the referring person has a real estate license.
10
Q
Ture or False & Why
Real estate brokerage involves all types of transactions, including residential, commercial, industrial, farm, timeshares and, options.
A
True
The definition of real estate brokerage under Kentucky law is very broad. Anytime someone receives compensation for dealing with real estate he/she does not own they are likely a practicing real estate broker.
11
Q
Ture or False & Why
Jake is an attorney in a small law firm that handles real estate matters. He is handling a divorce and wants to assist his client by marketing the property on Craig’s List. Jake can receive a commission for his service, in addition to his legal fees for handling the divorce.
A
False
Attorneys who practice real estate must have a real estate license.
If the attorney is providing legal service only, a real estate license is not needed.
For example, if the attorney is reviewing an offer on a client’s property brought by either the client or the client’s agent, the attorney is acting as an attorney and does not need a license to practice real estate.
12
Q
Ture or False & Why
If someone owns a property, he/she may sell it without a license and without a real estate agent.
A
True
If a person owns real estate, he/she may deal with it without a license and without the assistance of a real estate agent.
13
Q
Ture or False & Why
Sarah lives in one unit of a four-plex. The owner only charges her $100 per month rent, which is much less than the other tenants pay. In exchange for the reduced rent, Sarah agrees to manage the other three units. Sarah does not need a real estate license to manage the property.
A
True
One of the exceptions to needing a real estate license to practice real estate is to receive as primary compensation for the management service the use of a rental unit.
14
Q
Ture or False & Why
Referral fees should be paid directly to the licensee making the referral.
A
False
Referral fees must be paid to the principal broker, not to the licensee affiliate. Sales associates cannot receive compensation directly - all compensation must come directly from the principal broker.
15
Q
Ture or False & Why
When you look at the Independent Contractor form you found a schedule requiring certain fees be paid for referrals.
A
False
The schedule included blanks for the duties, terms, and compensation information to be added.
Remember, each principal broker decides on the referral fees to be paid and received.
The KREC and the local boards and association of REALTORS® do not set compensation for any real estate service.
All fees are set by each principal broker without consultation with other principal brokers.
16
Q
Ture or False & Why
An out-of-state broker must always have a Kentucky real estate license to market property in Kentucky.
A
False
The statute of limitations states that all real estate contracts and compensation agreements must be in writing to be enforceable.
17
Q
Ture or False & Why
Mr. Adams owns an apartment building. He has an empty apartment and he has asked his secretary, who he pays an hourly salary, to show the property. His secretary does not need a license to show the property.
A
True
If the secretary is a regular employee, she does not have to have a real estate license to show Mr. Adams’ property.
18
Q
Ture or False & Why
LaRon wants to start a business to compile and categorize rental units near the university. He will not list or show the property and will not complete any paperwork. He still needs a license.
A
False
This is one of the exceptions for needing a real estate license.
19
Q
Explain the requirements to get a Broker’s license.
A
Broker’s license candidates must complete twenty-one (21) academic credit hours from an accredited institution (college or university), or 336 classroom hours in real estate from an approved real estate school.
Twelve (12) of the academic credit hours must be in real estate courses.
Of the required hours, three (3) academic credit hours, or forty-eight (48) of the classroom hours, must be in a broker management class.
Broker management class students must complete three (3) projects and pass an approved closed-book final examination in order to obtain credit for the course.
Broker candidates must have been in the real estate business as a sales associate for at least two (2) years, averaging twenty (20) hours per week for that period, prior to applying for the license.
20
Q
Explain Post Licensing requirements for a real estate license.
A
Any sales associate who is issued an initial sales associate license after January 1, 2016 MUST complete forty-eight (48) classroom (Links to an external site.) or online hours (Links to an external site.) of commission-approved post-license education (Links to an external site.).
The post-license course curriculum consists of 32 mandatory curriculum hours and 16 elective curriculum hours. These courses must be completed within two (2) years of receiving or activating an initial license.
Continuing Education (CE), which is talked about in detail in the following pages, is then due yearly (12/31/20xx) after the post-licensing (PLE) requirement is completed.
The KREC may (they are going to be much more strict about this in the future) grant an extension for a true hardship or other good cause shown for not completing the required hours.
However, KRS 324.085 requires KREC to cancel the license of any licensee who fails to complete his or her post-license education within two years (or within the extension period, if applicable).
21
Q
Explain License Renewals.
A
Once you have a license, you must renew it by March 31st on a biannual basis.
Licensees renewed by March 31, 2020, but will not have to renew again until March 31, 2022.
Individuals that obtain a license in 2021 will renew in 2021, but will not have to renew again until 2023.
The license law gives the Commission the opportunity to change that date if it decides to do so.
When the licensee renews his/her license, a new license will not be issued unless the licensee’s name, address, status, or affiliation changes.
22
Q
An applicant must be at least how old?
A
18
23
Q
Following current license law rules today, licensees in other states may apply for a Kentucky license through
A
reciprocity
24
Q
All of the following are required for taking the associates licensing examination EXCEPT
A. two letters of recommendation from brokers
B. six academic credit hours from a college or university or ninety-six classroom hours from an approved school
C. providing an FBI criminal background check
D. a high school diploma or its equivalent (GED)
A
two letters of recommendation from broker
25
One way the KREC makes sure the consumer is protected is to require
A. a criminal background check of all applicants
B. proof of citizenship of all applicants
C. a credit check of all applicants
D. that applicants may only take the examination three (3) times
A. a criminal background check of all applicants
26
Which of the following is not an exception to having a real estate license to market property?
A. Attorney at Law
B. Attorney in Fact
C. Property manager receiving rental unit as his/her primary compensation
D. Regular employee of property owner
A. Attorney at Law
An attorney at law may only market property if he/she has a real estate license, unless he/she is acting under a court order.
27
After passing the licensing examination, the applicant has how long to apply for his/her license?
60 Days
28
If a principal broker wants to get new licensees, it would be a good idea to visit the pre-license classrooms and advertise the brokerage.
No, because the license law prohibits an approved real estate school from advertising in conjunction with a real estate brokerage.
29
Applicants for a broker's license must take an additional
21 academic credit hours or 336 classroom hours from an approved school
30
A new licensee must
A. complete 12 hours of continuing education
B. complete 24 hours of continuing education
C. complete 24 hours of Post-licensing education
D. complete 48 hours of Post-licensing education
D. complete 48 hours of Post-licensing education
A new licensee must complete 48 hours within 2 years of activating an initial license.
31
The issue of license cancellation arises though the ?
License Law and Regulation
32
What are the reasons that a Real Estate License may be canceled?
(1) when a licensee fails to renew his/her license;
(2) when he/she writes the KREC a check which is returned for insufficient funds;
(3) when he/she fails to re-affiliate with a new principal broker after being released from his/her current principal broker;
(4) or when/he fails to complete continuing education requirements (including post-licensing education).
(5) fails to comply with an order issued by the KREC.
(6) These reasons are failure to notify the KREC, in writing, if the licensee has changed
I. his/her residence address within ten (10) days of the move;
II. has changed his/her principal place of business location;
III. has changed his/her firm name;
IV. transfers from one principal broker to another principal broker;
V. changed his/her surname.
33
If the commission suspends the license as a result of failing to comply with CE requirements, the licensee shall not be allowed to activate the license unless?
Within ninety (90) days following expiration of the suspension, the licensee:
(a) Completes all delinquent mandatory continuing education requirements;
(b) Submits the required documents to reinstate the license; and
(c) Pays all necessary reactivation, renewal, and transfer fees.
34
If the commission suspends the license as a result of failing to comply with CE requirements, and If the licensee does not reinstate the license within ninety (90) days following the completion of the suspension period. What happens?
The license shall be cancelled and the licensee shall be obligated to meet the requirements for initial licensure, including retaking the examination.
If a licensee earns a commission prior to his/her license being canceled, the commission may be paid to the licensee although his/her license is canceled.
35
Explain yearly CE requirements
Beginning January 1, 2020 (KRS 324.046) Licensees have to complete twelve (12) hours of continuing education each biennial license period.
Six (6) of the twelve (12) hours must be in KREC-approved law courses.
Six (6) hours must be completed by December 31st of the first year of the renewal period, three (3) of which must be in law.
The other three (3) hours must have topics that will enable the student to better understand the brokerage business and to serve the public.
Licensees who take more than six (6) hours during the first year of the renewal period CAN use those excess hours towards the second year in the renewal period.
If a licensee attends more than six (6) hours in the second education cycle, the extra hours do not carry over to the next cycle requirement.
36
Explain Kentucky Core Requirements
Once every four (4) years an active licensee must take the Kentucky Core Class which is a six (6) hour law class.
When the licensee is first licensed, his/her first four (4) year cycle beginnings from the year of initial licensure.
37
A license cancelled for non-fulfillment of the continuing education requirements may be reactivated if ?
the licensee enters into a written delinquency plan, pays a $1,000 administrative fine, and either:
1. Places the license into inactive status; or
2. Agrees in the delinquency plan to complete the delinquent continuing education requirements for the previous calendar year on or before April 30.
38
A licensee who places his or her license into inactive status under the provisions of this section shall not reactivate the license until he or she has
Completed all delinquent mandatory continuing education requirements and satisfied the requirements of the inactive status provisions of the license law statute.
39
If the commission suspends the license as a result of a default order or after hearing, if one is requested, the licensee shall not be allowed to activate the license unless
Within ninety (90) days following expiration of the suspension, the licensee:
(a) Completes all delinquent mandatory continuing education requirements;
(b) Submits the required documents to reinstate the license; and
(c) Pays all necessary reactivation, renewal, and transfer fees.
If the licensee does not reinstate the license within ninety (90) days following the completion of the suspension period, the license shall be cancelled and the licensee shall be obligated to meet the requirements for initial licensure, including retaking the examination.
40
If a licensee wants to place his/her license in inactive status, he/she must provide?
Proof of an extended reporting period coverage insurance for one (1) year.
To become active, an inactive licensee must submit a national criminal records check, complete CE if applicable, and pay reactivation fees.
Beginning January 1, 2021 if the licensee has been inactive during more than one (1) education cycle, the licensee shall complete core plus six hours of continuing education elective to be selected from a list of courses to be compiled by the commission.
41
If a new licensee immediately places his/her new sales associates license into inactive status they do not
Need to complete their PLE requirements until they go out of inactive status and affiliates with a principal broker. After that, the 2-year deadline begins from the date he/she is active.
42
Ture or False & Why
When a license is canceled the licensee can brokerage real estate, but only under the direction of a principal broker.
Fales
When a license is canceled, the licensee cannot broker real estate until the license is back in active status.
43
Ture or False & Why
The KREC may extend the deadline for completing continuing education hours.
True
The deadline may be extended for "a true hardship or other good cause shown".
However, the licensee must pay a $500 fine and complete the hours no later than June 15th.
44
Ture or False & Why
A license may be canceled if the licensee tried to renew his/her license with a check that is returned for insufficient funds.
True
45
Ture or False & Why
If a licensee fails to renew on time, the fine shall not exceed $500.
False
If the license is not renewed on time, the fine shall not exceed $200.
Remember, questions with numbers are easy to ask and you will likely see them on the licensing examination.
46
Ture or False & Why
A licensee that does not complete his/her continuing education as required will pay a fine and must still finish required continuing education.
True
47
Ture or False & Why
The Kentucky Core class must be taken by all licensees at least once every four years.
False
All licensees that are not "grandfathered" must take the Kentucky Core class at least once every four (4) years.
48
Ture or False & Why
Real Estate licenses must be renew by March 31st on a biennial basis.
True
49
Ture or False & Why
Licensees licensed after June 19, 1976 must complete six (6) hours of continuing education classes each year with at least three (3) hours of real estate law.
True
All six (6) hours may be in real estate law, but at least three (3) MUST be in real estate law.
50
Ture or False & Why
If a licensee earns a commission which has not been paid before his/her license is canceled, the licensee cannot collect the commission until his/her license is back in active status.
False
If the commission is earned prior to cancelation, it may be paid even if the license is canceled. The triggering time for payment is the license status when the commission is earned.
51
Ture or False & Why
All licensees must complete continuing education classes.
False
52
KREC Group E&O Insurance Rules
The KREC is responsible for obtaining a group policy for licensees who choose to participate in the group.
To obtain the coverage, the Commission uses a competitive, sealed bidding, process.
Licensees in the group policy cannot have their policies canceled regardless of how many claims they may have in a year.
If the KREC cannot obtain E&O coverage at an annual premium not to exceed $200, the mandatory insurance will not be applicable during that year.
At least thirty (30) days prior to the renewal date, the licensees will be notified of the required terms and condition for the policy.
53
KREC requirements for private E&O Insurance
If the licensee chooses an independent company, there is a charge of $10.00 per licensee for the KREC to process private coverage.
The licensee must supply a certificate proving that the terms of the private coverage policy meet the minimum statutory requirements.
The policy must provide that the policy cannot be terminated or cancelled for any reason unless the insurance company provides prior written notification to the KREC.
The minimum coverage for any one agent shall be $100,000 for any one claim and not less than $1,000,000 annual aggregate, excluding the cost of investigation and defense.
Brokers may purchase firm coverage from an independent carrier. In that event, the firm coverage must be an aggregate of $1,000,000 for 1-40 licensees in the firm and a $2,000,000 aggregate for 41 or more licensees.
Deductibles may not exceed $2,500 for judgment or settlement and $1,000 for cost of investigation and defense.
54
Explain Claims Made
That means that the claim against the licensee insured was made during the term of the policy.
A claim made outside the effective date of the insurance will not be covered even if the alleged negligent event happened during the period.
55
What are the common exclusions found on E&O insurance?
1. For dishonest, fraudulent, criminal or malicious acts with the knowledge of the insured
2. Arising out of the insolvency of the insured
3. Inability or failure to pay or collect the premium, escrow, or tax money
4. An employee or former employee claim arising out of contract of employment
5. For personal injury or damage which the insured intended or expected
6. For bodily injury, sickness, disease, or death of any person or physical injury to or destruction or loss of tangible property
7. Arising out of libel, slander, defamation of character, false arrest or imprisonment, wrongful entry or eviction or other invasion of the right or private occupancy, or malicious prosecution
8. Arising out of social security payments
9. Arising out of antitrust or securities laws
10. Arising out of conversion, misappropriation, commingling, defalcation of fund – all of these are criminal actions
11. Failure of a property manager to maintain adequate levels or types of insurance
12. Arising out of discrimination
13. Arising out of liability assumed by the insured under any indemnity, hold harmless, or similar provisions or agreements – this would arise if a licensee agreed to pay damages that he/she otherwise would not owe
14. Arising out of business disputes brought by partners, shareholders, or other investors
15. Arising out of environmental hazards
16. Arising out of the licensee’s ownership of property that leads to the claim
17. Arising out of the insured acting in the capacity of mortgage banker or correspondent, escrow agent, construction manager, or property developer.
56
Ture or False
By statute, the maximum amount E&O can cost each year is $200.
True
57
True or False
The minimum coverage required for E&O insurance is $1,000,000.
False
58
When do FBI reports expire
90 days after the report date of issuance.
59
When evaluating whether to grant a license, the Commission will consider a variety of factors, including whether the crime for which the applicant was convicted directly relates to the occupation of real estate sales and brokerage. In making such a determination, the Commission will consider:
1. The nature and seriousness of the crime for which the applicant was convicted and the passage of time since its commission.
2. The relationship of the crime to the purposes of regulating the professions of real estate sales associates and brokers.
3. The relationship of the crime to the ability, capacity, and fitness required to perform the duties and discharge the responsibilities of a real estate sales associate or broker.
60
If an applicant has a felony in the past ten (10) year or a misdemeanor in the past five (5) years, the applicant
A. will need to wait until the misdemeanor offense happened at least 6 years ago.
B. can never have a real estate license.
C. will be on probation for the first 6 months of licensure.
D. will be investigated by the KREC to determine if he/she is eligible for a license.
D. will be investigated by the KREC to determine if he/she is eligible for a license.
If the applicant has a felony in the last ten (10) years or misdemeanor in the past five (5) years, the KREC will investigate the case to ascertain whether or not the applicant may be a danger to the consuming public.
The Commissioners are looking to see if the crime committed shows evidence of dishonesty, untruthfulness, or bad reputation.
61
D: Broker
Is anyone who has a broker’s license who may or may not be a principal broker.
62
D: principal broker
Is defined in the license law as “a person licensed as a broker under KRS 324.046, who, in addition to performing acts of real estate brokerage or transactions comprehended by that definition, is the single broker responsible for the operation of the company with which he or she is associated”.
Basically, the broker in charge is the principal broker.
63
D: Sales Associates
Also referred to in the license law as affiliates.
A sales associate is defined in the same statute as “any person licensed in accordance with KRS 324.046(2) that is affiliated with a Kentucky-licensed principal broker—and who, when engaging in real estate brokerage.
Does so under the supervision of the principal broker”.
A licensee may have only one (1) principal broker. Sales associates work as agents of the principal broker and owe their principal broker all fiduciary duties.
64
D: Affiliation
Under the license law “means the relationship agreed upon between a licensee and a principal broker and reported to the commission where the licensee places his license with the principal broker for supervision of the licensee’s real estate activity”.
Principal brokers cannot charge sales associates an affiliation fee to work with their companies.
Licenses of the licensees affiliated with the office must be kept in the office where the affiliates are actively engaged.
65
What happens if the principal broker chooses to terminate affiliation?
The broker may release the licensee through the KREC Online Licensing Services.
After doing so, the license must be immediately destroyed by the principal broker.
The licensee will receive automatic notification of the release through an email from the system.
If the principal broker does not use the KREC Online Licensing Services, the broker must immediately deliver or mail the affiliate’s license to the KREC, along with a statement of release (Form 200).
A copy of the notice must be sent to the last known address of the affiliate, advising him/her that his/her license has been returned to the KREC.
The principal broker must send a communication to the last known address of the affiliate, advising him/her that his/her license has been returned to the KREC.
Once the license is returned to the Commission, the licensee cannot perform any brokerage activities until his/her license is placed with a new principal broker.
When the KREC receives the returned license, the KREC shall notify the sales associate by regular mail at his/her last known address, that within thirty (30) days of the date of the letter, the licensee must either affiliate with another principal broker or place his/her license in inactive status.
Should the licensee either fail to re-affiliate or place his/her license in inactive status, the license will be canceled.
66
Explain broker associate & associate broker terms.
These terms simply mean the person has a broker’s license but is working as a sales associate.
This is a way to market services by informing the public that, although he/she is working as a sales associate, he/she has a broker’s license.
There is no special license for a broker associate or associate broker in Kentucky.
Some states have licenses for these designations. The only licenses issued by Kentucky are the broker and associate licenses.
67
If the affiliate, or the KREC, requests that the principal broker return his/her license to the KREC, the principal broker must immediately do so.
What does immediately means in this context?
immediate means 5 business days.
If the principal broker fails to return the license, he/she shall be in violation of the license laws.
68
In a brokerage does the principal broker own the business? Who owns the customers and sales contracts?
The principal broker may or may not own the brokerage, but he/she does own all listings and sales contracts.
This is often a misunderstood concept.
Sales associates often do all the work with a particular client or customer and believe that they own the client or customer.
69
When an affiliated licensee changes brokerage, the licensee must?
Leave all listings and listing information with the principal broker, unless the principal broker and licensee have a written agreement that the licensee may take the files to the new office.
Files that must be left include those that were obtained through the affiliated licensee’s efforts as well as files given to the licensee by the broker.
70
What is the exception to the one principal per office rule?
The KREC permits two principal brokers in one office for this limited purpose only if the principal broker closing his office has no affiliated licensees and if no consumers will be adversely affected.
71
Brokerage assumed name rules.
Company names may include the principal broker’s name, as well as the names of other licensed brokers affiliated with the firm.
Because of the good will value of a company name, a brokerage may want to keep the name of the deceased broker as part of the firm name.
Under license law, that is permissible.
A sales associate may want to have his/her name as part of the firm name.
That is permissible if the sales associate has been working with the firm for two (2) years, averaging at least twenty (20) hours per week for twenty-four (24) months.
72
Explain the rules for branch principal brokers.
Principal brokers must maintain a definite place of business in Kentucky, unless he/she is a nonresident licensee who maintains a place of business in the state of original licensure.
Branch offices may be maintained by principal brokers.
However, if the branch office is farther away than a one hundred (100) mile radius of the main office, the branch office must have a broker managing that office.
If the office is within a one hundred (100) mile radius, a sales associate with two (2) years experience in the real estate brokerage, averaging at least twenty (20) hours per week for a period of twenty-four (24) months prior, may manage the office.
Branch offices must be registered with the KREC within ten (10) day of creation.
In the event the principal broker dies or becomes otherwise incapacitated, another principal broker must take over the management of the brokerage.
If there are no other affiliates with a broker’s license in the firm, the KREC, solely at its discretion, and based on the merits of the case, may agree that a sales associate may temporarily run the business solely for the purpose of closing it.
This temporary period may not exceed six (6) months.
73
True or False & Why
When requested to do so by an affiliate, the principal broker must immediately return the license to the KREC.
True
"Immediate" is defined as five (5) business days. Failure to return the license to the KREC when requested results in a license law violation by the principal broker.
74
True or False & Why
The principal broker owns all listings and sales contracts.
True
This is a confusing concept because many times the principal broker never meets the seller and buyer. However, the principal broker, not the brokerage and not the affiliates, own the listings and sales contracts.
75
True or False & Why
Because affiliates may not bring in much money to the brokerage when they are first licensed, a principal broker may charge and affiliation fee.
False
A principal broker cannot charge an affiliation fee.
76
True or False & Why
All affiliates are employees of the principal broker.
False
As a matter-of-fact, it is the opposite. Very few affiliates are employees. Most affiliated brokers and associates are independent contractors.
77
True or False & Why
While a licensee is in inactive status, that licensee can still be paid a referral fee.
False
78
True or False & Why
Affiliates may not broker real estate when their licenses are not with a principal broker.
True
An affiliate cannot practice real estate until his/her license is placed with a principal broker.
79
True or False & Why
There are only two types of licenses issued by the KREC.
True
The only two types of licenses issues by the KREC are the broker's and sales associate's license.
80
True or False & Why
The principal broker may return the affiliate's license to the KREC without informing the affiliate.
False
When the principal broker returns an affiliate's license to the KREC, the principal broker must send a communication to the last known address of the affiliate, advising him/her that his/her license has been returned to the KREC.
81
True or False & Why
Affiliates owe the principal broker fiduciary duties.
True
The affiliates are agents of the principal broker and owe the principal broker the duties of: obedience to lawful instructions, loyalty, disclosure, confidentiality, accounting, and reasonable care and skill.
82
D: Earnest Money Deposits
AKA: Good Faith Deposits, & Contract Deposits
Earnest money deposits are typically given by the buyer to the seller to show that the buyer is acting in good faith.
Generally, in a transaction involving a real estate agent, the agent’s principal broker holds the money in his escrow account instead of giving it directly to the seller.
The contract may vary this general rule, with the money being given directly to the seller.
When there are two brokerages involved, either one may deposit the earnest money in his/her escrow account.
Typically, local custom controls whether the listing broker or the selling broker holds the deposit.
From the standpoint of the license law, it does not matter which principal broker holds the funds because both are governed by the licensing law.
Occasionally, the buyer and seller will have an opinion about which broker should hold the money.
In that event, who holds the deposit will be negotiated as part of the sales contract.
83
D: Contract Deposit
“means earnest money delivered to a licensee in conjunction with real estate sales contract [licensed agent as part of an offer to enter a contract for the sale of real property] after:
(a) The offer or counteroffer is accepted;
(b) An executory contract exists”.
84
D: Executory Contract
is one that has been signed by all necessary parties. Good faith deposits must be deposited into the escrow account without unreasonable delay.
85
D: Without Unreasonable Delay
As three business days after receipt of the funds.
Therefore, the principal broker has three business days from receipt of the funds to deposit the earnest money into the escrow account.
86
Money may be removed from the principal broker’s escrow account when?
1. When the contract is completed by performance. That is, when the transaction closes.
2. By mutual agreement of the parties. If the buyer and seller sign a mutual agreement for the principal broker to release the funds, the funds may be released.
3. Court Order. Funds may be released from the escrow account upon the principal broker receiving a court order from a court of competent jurisdiction. Competent jurisdiction means that the court entering the order has the legal authority to do so. When the parties cannot mutually agree to release the money, one of them may file a court action to have the court determine how the principal broker will disburse the funds.
4. Broker letter, also referred to as the 60-day letter. Once the principal broker receives notice from one of the parties that the transaction is not going to close, the broker may initiate the release process. To initiate the process, the principal broker sends a letter by certified mail to the last known address of the parties. In this notice, the broker states how the money will be disbursed if the parties do not sign a mutual release, or if one or both do not institute court action. The notice gives them 60 days from the mailing date on the letter to either sign the release or institute court action. When the 60 days pass, the principal broker may release the money as set forth in the letter. Once the money is released, as long as the process was followed properly, the principal broker will not be liable to the parties even if one or both of them file a complaint with the KREC or with the circuit court.
87
The commission may issue an emergency order prior to conducting a hearing if an alleged escrow account violation warrants emergency action. The grounds are?
(a) A licensee is alleged to have committed two (2) or more escrow account violations;
(b) A licensee is alleged to have committed one (1) escrow account violation in excess of $500; or
(c) A substantiated threat to the public’s health, safety, or welfare exists.
88
D: Uncollected Deposits
That means that once the check is deposited into the escrow account, until it clears the bank, the money cannot be removed.
If the principal broker wrote a check to someone before the check is cleared by the bank, the principal broker would be using someone else’s money.
Also, if the principal broker were to remove the funds and the check is returned for insufficient funds, the broker would be liable to replace those funds.
Principal brokers cannot keep personal or business funds in the escrow account.
That is known as co-mingling and is illegal.
89
A branch office must be managed by a person with a broker's license unless
A. the office is within a one hundred (100) mile radius of the main office
B. there is no more than one branch office
C. there are fewer than three (3) affiliates located in the branch office
D. the branch office is located within a hundred (100) mile radius of the principal broker's home
A. the office is within a one hundred (100) mile radius of the main office
If the branch office is within a one hundred (100) mile radius of the main office, it can be managed by a sales associate with two (2) years experience in the real estate brokerage averaging at least twenty (20) hours per week for a period of twenty-four (24) months prior.
90
After you take your license examination and pass, you decide not to work in real estate for a few years. Your BEST option would be
A. ask the KREC to cancel your license
B. open your own brokerage and let your license be dormant until you are ready to use it
C. place your license in inactive status
D. return your license to the KREC and ask them to hold your test score in abeyance
C. place your license in inactive status
Placing your license in inactive status is the best option. You can remove it from escrow and use it when you are ready to practice real estate.
91
The one exception to the requirement that every office must have a principal broker is
A. If there is an associate with at least two (2) years experience working twenty (20) hours a week for the past twenty-four (24) months
B. if there are fewer than five (5) affiliates at any one time.
C. if the principal dies or becomes incapacitated and there are no other brokers in the office to close the business
D. for a brokerage that has been in business for over twenty (20) years
C. if the principal dies or becomes incapacitated and there are no other brokers in the office to close the business
The only exception is when a principal broker becomes incapacitated or dies and there is no one with a broker's license in the office. A sales associate with KREC permission may manage the office for no longer than six (6) months to close the office. What often happens during that six (6) months is someone in the office gets a broker's license or the brokerage hires a principal broker.
92
All of the following are true about the principal broker's escrow account EXCEPT it
A. may be audited by the KREC
B. is also known as the broker's trust account
C. must be in a Kentucky bank
D. cannot be interest-bearing
D. cannot be interest-bearing
The account may be interest-bearing, although most principal brokers do not use interest-bearing accounts because of the small amount of interest earned and the large amount of accounting necessary. If the account is interest-bearing, the parties to the agreement must all agree on the disbursement of the interest.
93
The brokerage can use all the following names EXCEPT
A. the principal broker name
B. the name of the deceased broker
C. an assumed name
D. an associate's name
D. an associate's name
This is the correct answer because it does not completely state the rule. You will need to watch for tricky questions on the license examination. An associate's name could be used IF the sales associate has been working with the firm for two (2) years, averaging at least twenty (20) hours per week for twenty-four months.
94
Contract deposits must be placed in the principal brokers' escrow account
A. without undue delay upon the creation of an executed contract
B. immediately
C. without unreasonable delay after the receipt of the funds
D. when the buyer assures the associate that all funds are in the bank
C. without unreasonable delay after the receipt of the funds
95
The principal broker can release the earnest money in the event of all the following EXCEPT
A. the closing occurs
B. a court orders the release of the funds
C. the buyer presents a letter that his/her financing has not been approved
D. the parties agree to the release
C. the buyer presents a letter that his/her financing has not been approved
Although the contract may be subject to financing and the buyer cannot get financing, the broker cannot release the funds based on that letter. The mutual release, court order, or broker letter must be used.
96
Without unreasonable delay is defined in the license law as how many days?
A. 1 calendar day
B. 3 business days
C. 1 business day
D. 3 calendar days
B. 3 business days
97
If the KREC receives allegations of misuse of an escrow account, it may
A. go to Circuit Court and get an injunction
B. conduct an emergency hearing
C. land the broker in jail
D. file a complaint against the principal broker
B. conduct an emergency hearing
There is a recent statute that permits the KREC to hold an emergency hearing in the event of allegations of an escrow account misuse.
98
A brokerage may have two principal brokers if
A. the KREC gives its permission for "good cause shown"
B. the office is so large one principal broker cannot adequately supervise all the affiliates
C. one principal broker is closing his office, has no affiliated licensees, and no consumers will be adversely
D. one principal broker is retiring and the other one is being trained to take over within the year
C. one principal broker is closing his office, has no affiliated licensees, and no consumers will be adversely
If one broker is closing his/her office and needs time to finalize current transactions, he/she may move to another office and remain the principal broker only for the purpose of closing down his/her office. This can only happen if the principal broker closing the office has no affiliates and consumers are not adversely affected.
99
How long must the broker keep records of real estate transactions?
The records must be kept in one file for each transaction and must be kept for a period of five (5) years following the consummation or failure of the transaction.
100
What real estate transactions must be kept for records?
1. Any written offers to lease or purchase real estate. The license law does not distinguish between which principal broker must retain the offers, but the generally accepted practice is for both brokers to keep them. Notice that documents that must be kept concern not only sales of property, but also leases.
2. The acquisition and disbursement of money. Records must be kept and must be clear about the money collected by the principal broker on behalf of a customer or client. These records are generally in the form of copies of checks, bank statements, sales contracts, leases, and other documents to allow the money to be traced in the event of a KREC audit.
3. Listing and sales contracts. If more than one principal broker is involved in the transaction (one brokerage listing the property and one brokerage selling the property), both brokerages must keep copies of the contracts.
4. Closing statements. These are the documents that are provided at closing that give an accounting of the transaction; who paid and received what sum of money and for what reason it was paid or received. These forms are sometimes referred to as settlement statements.
5. Property disclosure forms. As the class will cover in a future module, the Kentucky license law requires the listing agent deliver to the seller of property a Seller’s Disclosure of Property Condition Form. This is one of the documents that must be kept by the listing and selling brokerages. It is also one of the forms that must be provided to the KREC in the event of a KREC complaint.
6. Agency disclosure forms. This form will be discussed in a later module. The license law requires that agency relationships be discussed with buyers and sellers. As part of that discussion there are certain forms that must be completed and delivered. The Guide to Agency Relationships and Agency Consent Agreement are required to be kept by the principal broker whose affiliate completed them, and they must be supplied to the KREC in the event of a KREC complaint. These are not forms that are kept by both principal brokers unless the buyer and seller were both represented by the same brokerage.
7. Condominium Seller's Certificate. Another form to be discussed in a later module. records broker must keep The Condominium Statute was amended to provide that a buyer of a condominium has the right to declare a purchase contract void for 5 days after they receive this Certificate. The Certificate provides basic information about the operations and expenses of the Condominium Association.
101
D: Absolute Auction
The property must sell to the highest bidder at the auction, regardless of how low the bid.
102
D: Reserve Auction
Means that the seller has a bottom line number they will accept. If the bids do not reach that number, the property does not sell at auction.
103
D: Debit & Credit Closing Statement
If a real estate broker performs a closing, he/she must furnish a debit and credit type closing statement to the buyer and seller.
A debit and credit closing statement is one that shows in detail how much money the buyer is paying and how much money the seller is receiving.
If the closing is conducted by a financial institution, the principal broker must insure that the buyer and seller receive a debit and credit closing statement.
EX: HUD-1, Closing Disclosure or TRID Settlement Statement
104
True or False & Why
Licensees may mail (first class, postage prepaid) all forms signed in the transaction, to the person signing.
False
Licensees must give the signers copies of the forms immediately upon signing.
105
True or False & Why
Principal brokers must assure that all buyers and sellers get a debit and credit closing statement at closing.
True
106
True or False & Why
Under the license law, agency disclosure forms and seller disclosure forms must be kept for at least 3 years.
False
They must be kept for 5 years according to license law.
107
True or False & Why
Property sold at absolute auction must bring a minimum bid.
False
Property sold at absolute auction must sell to the highest bidder. An auction with reserve has a floor sales plan.
108
True or False & Why
The date and time for delivery of email is the time it is sent from the originator's email system.
True
109
True or False & Why
A principal broker cannot keep his/her personal money in the escrow account.
True
That is called co-mingling funds and is illegal.
110
True or False & Why
Principal brokers are not required to keep offers because they never become contracts.
False
Offers to purchase and lease must be kept by the principal broker. The law does not state which principal broker, but it is generally accepted that the offers are kept by the brokerage making the offer.
111
True or False & Why
Documents in a real estate transaction may be faxed or sent by email.
True
112
True or False & Why
Sales associates may only keep copies of files with the principal broker's permission.
True
113
True or False & Why
Principal brokers must keep their transaction files for 7 years.
False
Records must be kept for 5 years.
114
How does Ky define false, misleading or deceptive advertising?
1. Is known or reasonably should have been known to be false or contrary to fact at the time of placement of the advertisement.
2. Misleads or misinforms the general public in any manner.
3. Would lead a reasonable observer to believe that real estate brokerage services were being offered by an affiliated licensee or licensees independent of their real estate brokerage company or principal broker.
115
D: Team
AKA: Group
. Pursuant to the new license law Definitions a "Team" or "teams" as “a group of licensees working together who are:
1. Affiliated with the same principal broker;
(b) Led by a team leader; and
(c) Representing themselves to the public utilizing the same authorized alternate or assumed name to brand, advertise, and broker real estate.”
2. The regulation also defines a "Team leader" as “an individual who is designated by his or her principal broker to be the head of the team.”
116
What are the advertising limitations placed on real estate teams?
The regulation states that: “More than one (1) licensee, whether a team, group, other business arrangement, or real estate brokerage company, may collectively use an alternate or assumed name for advertising with the written approval of the principal broker.
(2) Prior to allowing the use of an alternate or assumed name in advertising, a principal broker shall:
(a) Register, or ensure the registration of, the alternate or assumed name with the commission; and
(b) Ensure that the alternate or assumed name is populated in the principal broker’s or affiliated licensee’s online services portal.
(3) An alternate or assumed name shall not:
(a) Contain terms that may lead the public to believe the licensee or licensees approved to use the alternate or assumed name is offering real estate brokerage services independent of the principal broker unless the alternate or assumed name is for the real estate brokerage company; or
(b) Be used by more than one (1) group of licensees within the principal broker’s brokerage company, unless the alternate or assumed name is for the real estate brokerage company.
(4) An alternate or assumed name may include reference to a name or person if the name or person has not lost the ability to engage in real estate brokerage through administrative discipline or by operation of law.
(5) If the alternate or assumed name applies to a team or group, the alternate or assumed name shall end with the word "team" or "group."
(7) If a principal broker permits teams, a principal broker shall notify the commission in writing of the alternate or assumed name used by the team and the name of the team leader be- fore permitting team advertising.
(8) If a principal broker authorizes team, group, or other business arrangements between affiliated licensees, the principal broker shall:
(a) Offer, at a minimum, company procedures for advertising, agency relationships and handling confidential information, management and operations specific to the team, group, or other business arrangements between affiliated licensees;
(b) Designate a licensee who shall be responsible, along with the principal broker and designated manager, for the operations of the team, group, or other business arrangement. The designated licensee shall be referred to as the "team leader" regardless of how the team, group, or other business arrangement labels itself;
(c) Maintain a current list of all affiliated licensees, employees, office personnel, and clerical staff who are a part of each individual team, group, or other business arrangement; and
(d) Notify the commission in writing of the first and last name and license number of the team leader.
(9) A principal broker shall ensure any employee or unlicensed personal assistant, salaried or independently contracted, employed by, retained by, or under the direction of the principal broker or any affiliated licensee, are in compliance with the applicable provisions of KRS Chapter 324 and 201 KAR Chapter 11. “
Also, any advertising that includes the name of the team or group must have the broker’s name or company name in it and the team or group name may not be larger than the broker’s or company name.
