2026 Kentucky Real Estate Law Review - Sample Page
Copyright 2026 by Joyce Bea Sterling - Diamond Distinguished Real Estate Instructor
All rights reserved.

The review follows the content outline found
in the Candidate Handbook from PSI that will be on your real estate exam.

There is a downloadable audio file with each section of the review. 

Scroll down the page to find the audio file. 

 This is a summary of many of Kentucky’s real estate license laws.
The author is not an attorney and is not providing legal advice.
Specific law questions should be directed to an attorney.

Public Protection Cabinet

The "Read Along" audio file may be downloaded and used by the person who paid for the class.
All texts and audio files are copyright. Please honor copyright laws. 

The purpose of the Public Protection Cabinet (PPC) is to keep Kentuckians safe in business, leisure and daily life. Our goal is to provide the best service to every citizen and business in the state.

The Department of Professional Licensing provides administrative and fiscal operations, technical support, and advice to 24 regulatory boards in the complex system of occupational licensing. Every industry in Kentucky that requires a license is found on their website.

One of these regulatory boards is the Kentucky Real Estate Authority which protects the public through licensing real estate professionals, including appraisers, auctioneers, home inspectors, and real estate sales associates and brokers. Four governor-appointed boards guide staff to carry out the mission of each board and serving the public.

Real Estate Commission - If you are taking the sales associate exam, there will be 5 questions on this topic. If you are taking the broker's exam there will be 7 quesitons. on this topic. 

General Powers

Simply stated, the purpose of the Kentucky Real Estate Commission is to protect the public interest through regulation, examination, licensing and education of Kentucky real estate sales associates and brokers. 

About the KREC
There are 7 real estate commissioners, and all are appointed by the Governor.
Sometimes they are called members of the KREC.

Six of the commissioners must hold a real estate license. It can be either a sales associate’s license or a broker’s license. Member number 7 is the member-at- large, representing the public and cannot be associated with the business of real estate. This member is also known as a citizen-at-large.

The commissioners must have been residents of Kentucky for the ten years immediately prior to his or her appointment.

The term of a commissioner is for 3 years, and a commissioner may serve two consecutive terms. The terms are staggered so all the commissioners do not leave
at the same time.

When there is an opening on the KREC, there is an announcement and if interested, the person would apply with the Kentucky REALTOR® Institute. The person will be interviewed, and if selected, their name is added to the list. The Governor will receive a list of names from the Kentucky REALTORS® Institute and selects from the list.

No more than four commissioners can belong to the same political party and commissioners cannot live in the same county.

Each year the members elect a chairperson of the KREC, who will conduct the monthly commission meetings.

The commission shall not promulgate, which means announce, any administrative regulation which in any way fixes prices, establishes fees, or sets the rate at which licensees are compensated.  The Commission can have nothing to do with the commissions or compensation that a broker charges.

Automatic Removal of Member from Commission

These actions would also automatically remove someone from the commission:

A licensed commissioner ceases to have a license for any reason;

The consumer member acquires a license or a financial interest in the practice
of real estate;

A commissioner enters a plea of guilty or been found guilty of a felony in which fraud is an essential element or a crime of moral turpitude;

A member is no longer a resident of Kentucky;

Incompetence, neglect of duty, or unprofessional conduct;

A member fails to adhere to a duly adopted code of ethics of the commission; or
A member misses 3 consecutive meetings or misses more than 25% of the meetings held over the previous 12-month period.

Responsibility and Duties

It is the duty of the Commission to:

1. Promulgate, or announce, administrative regulations, with the approval of the Executive Director of the Kentucky Real Estate Authority.

2. If necessary, to conduct disciplinary hearings

3. To conduct examinations for applicants or to contract with an entity to conduct examinations;

4. To conduct educational seminars and courses directed in real estate education topics;

5. To investigate, or cause to be investigated, any irregularities in violation of chapter 324 or the administrative regulations; and

6. To participate with any other agency of the Commonwealth, or the authorized agency of another state, for the betterment or improvement of the administration of the statutes or administrative regulations governing this commission.

Remember, any action taken by the Commission is reviewed by the Executive Director of the Kentucky Real Estate Authority for approval, and any decision may be appealed.

Authority to Issue Licenses
The KREC has the authority to issue two types of licenses: Sales associate and brokers. When someone secures a broker’s license, he or she can open a brokerage firm, or let another principal broker hold the license. There is only one principal broker who is responsible for the operation of the business. There is no principal broker’s license.

A principal broker may be the principal broker of more than one brokerage firm.

Sales associates and brokers affiliated with a principal broker are called affiliated licensees. Affiliated licensees may only have one principal broker.

The principal broker will keep the real estate license in the office where the sales associate or broker is actively engaged or affiliated.

Examination and Audit of Records
Each principal broker must give the KREC permission to audit the escrow account and records of the firm. This happens when the person applies to become the principal broker of the company and upon renewal of the license. 

 
Administration of Education, Research, and Recovery Fund

The Commission maintains the Real Estate Education, Research and Recovery Fund.

All monies are paid by real estate licensees and deposited into the state treasury.

One of the purposes of the Recovery Fund is to protect the public should a real estate licensee be found guilty of fraud in a real estate transaction and is not able to pay the aggrieved party.

The maximum amount that an individual may be paid from the Fund is $20,000.

The maximum amount that will be paid out on behalf of any one licensee if there are multiple complaints is $50,000.

The minimum amount of money that must be maintained in the recovery fund is $400,000.

Once the Recovery Fund has met the minimum amount, excess funds may be used for:

The advancement of education and research.
To underwrite educational seminars, etc.
To establish a real estate chair or courses at colleges and universities.
To fund research projects.   
To fund educational projects.
To work with the Kentucky Association of REALTORS® and other groups for the advancement of real estate education.  

Monies in the Recovery Fund may be used to augment the trust and agency account for purposes of addressing cash flow shortfalls, budget deficits, and for reimbursement of personnel, administrative, operational, and capital expenses incurred by the trust and agency account pursuant to the purposes of the education, research, and recovery fund as provided in this section, an amount not to exceed two hundred fifty thousand dollars ($250,000) annually.

Fees
Upon applying for the license and upon the biennial renewal, each licensee will pay a $60 recovery fund fee.

If a licensee is inactive, money must be paid into the Recovery Fund. Money could be paid from the fund to cover an inactive licensee that commits fraud in a real estate transaction. 

Filing a Claim
A claim must be filed within 1 year from actual knowledge of the cause of action or from the time when circumstances should reasonably have put the aggrieved party on notice of the cause of action.

Payment from the Fund
The steps to take to receive money from the fund are:
1. File the complaint on forms provided by the KREC. The complaint must contain prima facie evidence that KRS 324.160 has been violated. The term prima facie means that upon first sight, or first appearance, it looks as if the law was violated. However, it is subject to further evidence or information.

If the complaint does not constitute a prima facie case, the complainant has 10 days to supplement the complaint or the case will be dismissed without requiring the licensee to respond.

For example, if the complaint said that the real estate agent cursed, and even though many people do not consider that a good business practice, it is not against the law. This complaint would be dismissed.  

2. If the complaint screening committee decides that the complaint contains prima facie evidence, a copy will be served to the licensee at his or her last known address. The licensee has 20 days to respond.

3. Upon reviewing the answer, the complaint screening committee will decide to close the case or assign an investigator, who will meet with the parties, and make a report of the findings and present to the KREC.

4. The KREC may order a hearing which is scheduled and conducted.

5. If the licensee is found guilty, the Executive Director of the Real Estate Authority will review the findings and make a final decision. The Executive Director may order payment from the Recovery Fund.

6. The parties have 30 days to appeal to the circuit court for judicial review.

7. Upon the final order the licensee has 20 days to pay. If the licensee does not pay, the aggrieved party will be paid from the Recovery Fund. Only compensatory, or actual damages are paid from the Recovery Fund. Punitive damages, or damages for punishment is not paid from the Fund. 

License Status
When money is paid from the Recovery Fund on behalf of the licensee, the real estate license will be suspended and may be permanently revoked until the recovery fund has been repaid plus 10% interest per annum.

Enforcement Powers
The KREC has the power to investigate any licensee or anyone acting in the capacity of a license. During an investigation, the KREC may issue subpoenas, administer oaths, review evidence, review documents, examine witnesses, and pay witness fees.

 
Investigations, Hearings, and Appeals, Emergency Suspension
Anyone has the right to file a complaint with the KREC for reasons other than fraud. To file a complaint a person must use forms furnished by the Commission.

The complaint must be filed within one year from actual knowledge or the time circumstances would reasonably have given the party notice. 

The following documents must be submitted with the complaint and with the answer from the licensee:
1. Listing contract;
2. Purchase contract;
3. Seller's disclosure form;
4. Agency disclosure form; and
5. Settlement statement.

After reviewing the complaint, the Commission may decide to dismiss the case or schedule a hearing.

The parties may meet and enter a resolution. At that point the complaint may be withdrawn with approval of the KREC. This must be done within 20 days.

If the Commission decides to proceed with the case, the licensee be served at the licensee’s last known address. Served means the licensee must receive notice of legal action against them.  The licensee must file an answer on forms furnished by the KREC within 20 days and the answer form must be notarized. 

Emergency Hearings
If a licensee is alleged to have committed an escrow account violation, or mishandling other people’s money, the Commission may conduct an emergency hearing.  A licensee who tells a buyer, “Just make the earnest money check payable to me.” is a violation of the law. Earnest money checks are made payable to the brokerage firm. If the broker were to “borrow” money from the escrow account, that is a violation. 

Emergency action is warranted if:

1. A licensee is alleged to have committed 2 or more escrow account violations;

2. A escrow account violation exceeds more than $500; or

3. There is a threat to the public’s health, safety and welfare.

An emergency order will also be sent to the financial institution where the escrow account is located, and the account will be frozen until the issue is resolved.

Before an application for a license is denied, or there is disciplinary action imposed by the commission, there must be a hearing.   If the applicant or licensee is a sales associate the principal broker will be notified at the broker’s last known business address. 

Hearings may be conducted by a quorum of the Commission or by a hearing officer, which is an attorney, appointed by the Commission.

A hearing officer may not order any disciplinary action against a licensee. The hearing officer collects the facts and submits a report and makes a recommendation to the KREC.  The Commissioners approve or amend the recommendation, then submit it to the Executive Director of the Kentucky Real Estate Authority for final approval. 

Once a final decision is made by the Executive Director, an aggrieved party has 30 days to file an appeal in the Circuit Court of the county where the licensee has his or her principal place of business or where the license applicant resides.

Disciplinary action imposed by the executive director shall be automatically stayed or halted during the pendency of an appeal to a circuit or appellate court, unless otherwise indicated in the final order of the executive director.

Sanctions
The KREC may order the following sanctions as disciplinary actions.

1. License suspension – There is no time limit on the suspension of a license.
A licensee may NOT be involved in the real estate business when a license is suspended.

2. License revocation – 5 years is the first time the person may ask to get the license back and the KREC does not have to grant it.

3. Levy fines not to exceed $1,000

4. License probation for up to 12 months – A licensee may be active in the business when a licensee is on probation.

5. Additional continuing education classes may be required.

6. Issuing a formal or informal reprimand.  

Criminal Action - Unlicensed Brokerage

The KREC has jurisdiction over licensees, NOT members of the public. If someone practices real estate without a license, the Commission can file an injunctive relief against unlicensed brokerage activities.

This civil action would be filed in the circuit court where the Commission is located,
or the unlawful activity took place.

Unlicensed real estate brokerage activity is a Class A misdemeanor for the first offense and a Class D felony for any subsequent offenses. 

The circuit court may impose against any person who violates Kentucky real estate laws a fine of not less than $100 nor more than $1,000 and imprisonment for six months, or both. The person would have to return any commission that was paid, and each transaction is considered a separate offense.

Please note. The KREC has no authority to imprison anyone, only the courts can take that disciplinary action.

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