201 KAR 11:121 - Standards of professional conduct

RELATES TO: KRS 324.010(3), 324.111, 324.112, 324.121, 324.160, 324.281(5), 324.310, 324.360, 381.9203(1), (3), 383.580, 24 C.F.R. 3500, 44 C.F.R. 64.3(b), 12 U.S.C. 2601-2617

Section 1. Improper Conduct.
(1) In addition to the obligations and prohibitions set forth in KRS 324.160, a licensee shall not:
(a) Accept or agree to accept, or offer or agree to offer, anything of value to another person in violation of the federal Real Estate Settlement Procedures Act, 12 U.S.C. 2601 through 2617 ("RESPA").. This provision shall not affect paying or receiving referral fees between principal brokers for brokerage services;
(b) Refuse or prohibit any prospective purchaser from viewing or inspecting real estate listed for sale or lease with the real estate brokerage company with which the licensee is affiliated, without the written and signed direction of the listing or leasing client. This provision shall not be construed to permit otherwise unlawful discrimination;
(c) Offer real estate for sale or lease without written consent from the person or persons, or entity or entities authorized to sell or lease the subject real estate;
(d) Fail to satisfy one (1) or more of the following fiduciary duties owed to the licensee's client:
1. Loyalty;
2. Obedience to lawful instructions;
3. Disclosure;
4. Confidentiality;
5. Reasonable care and diligence; and
6. Accounting;
(e) Fail to satisfy one (1) or more of the following duties owed to the licensee's prospective client:
1. Good faith;
2. Fair dealing; and
3. The duty of confidentiality;
(f) Fail to satisfy one (1) or more of the following duties owed to a consumer or to any other party in a transaction:
1. Good faith; and
2. Fair dealing;
(g) Enter an ongoing team or group relationship with any other licensee at the same brokerage company without the written consent of the principal broker;
(h) Induce any party to a contract for sale or lease to break the contract for the purpose of substituting in lieu thereof a new contract for sale or lease with another client;
(i) If advertising real property at an absolute auction, sell the advertised property to anyone other than the highest bona fide bidder on the day of the auction; and
(j) If dually licensed as an auctioneer and real estate licensee, before a real estate licensee commences an auction, the licensee shall disclose his or her status as a real estate licensee to potential purchasers and whether he or she intends to bid during the auction.
(2) The fiduciary duty of confidentiality, if owed, shall survive the termination of the Agency Consent Agreement contemplated in Section 6 of this administrative regulation.
(3) It shall not be considered improper conduct for a licensee to advertise the fee or other compensation the principal broker agrees to charge for his or her services.
(4) It shall not be considered improper conduct for a licensee to offer rebates, discounts, or other inducements to consumers, prospective clients, or clients to use the licensee's services or truthfully advertise the same.
(5) It shall not be considered improper conduct for a licensee to use his or her registered nickname in place of the licensee's first name anytime the licensee shall identify himself or herself on an official document or to the commission.
Section 2. Submission of Written Offers.
(1) If a principal broker has entered into a written listing agreement, or any other written agreement, under the terms of which the principal broker agrees to provide real estate brokerage services for a fee, compensation, or other valuable consideration for the client, the principal broker shall provide, unless specifically waived or modified by the client in writing, for real estate that is the subject of the written agreement, the following services:
(a) Accept delivery and submit to the client, without delay, all written offers to lease or purchase;
(b) Accept all earnest money deposits that are presented to the principal broker or an affiliated licensee of the principal broker;
(c) Until the completion of the transaction, assist the client in developing, communicating, negotiating, and presenting offers, counteroffers, and notices that relate to offers and counteroffers; and
(d) Answer the client's questions relating to offers, counteroffers, notices, and contingencies involved in the lease or purchase.
(2)
(a) Each principal broker, or an affiliated licensee of the principal broker, who represents a client shall, without delay, submit all written offers to lease or purchase real estate from the principal broker's client to the person or legal entity authorized to sell or lease the property or to the principal broker, or an affiliated licensee of the principal broker, who has entered into a written agreement according to subsection (1) of this section. A licensee representing a seller shall submit a notice in writing through electronic, text, or other media to the licensee representing a buyer of the date and time when the offer was presented to the seller.
(b) If the principal broker is acting as a transactional broker, the principal broker shall follow the lawful instructions of the parties and provide the brokerage services as outlined in the transactional brokerage agreement.
(3) Failure to comply with this section shall constitute gross negligence in violation of KRS 324.160(4)(v).
Section 3. Listing and Purchase Contracts.
(1) A listing contract completed by or at the direction of a licensee shall include the:
(a) Listing price of the property, unless the sale is to be by auction;
(b) Date and time of the signing of the listing contract for all parties who sign;
(c) First and last name of the principal broker and the full name of the real estate brokerage company;
(d) Effective date and time of listing and advertising, if different;
(e) Date of expiration of the listing contract;
(f) Fee, compensation, or other valuable consideration agreed upon between the principal broker and the client;
(g) Address or a general description of the real estate sufficient to identify the parcel or parcels;
(h) Signatures and printed names of all parties necessary to affect a sale of the property, including any dower or courtesy considerations or the official representative of a legal entity, that is the subject of the listing agreement;
(i) Special directions of the client concerning limitations or restrictions on showings; and
(j) Date, time, and initials for all changes on the contract prior to acceptance.
(2) An offer to purchase completed by, or at the direction of, a licensee shall include the:
(a) Purchase price or a valid escalation clause with the maximum purchase price;
(b) Amount of contract deposit, if given, who is to hold the deposit, and the time period to deliver the deposit;
(c) Date and time of signing of the offer for all parties who sign;
(d) Date and time when the offer expires;
(e) Address or a general description of the real estate sufficient to identify the parcel or parcels;
(f) Signatures of all parties making the offer and the printed first and last name of the licensee who completed or directed the completion of the offer;
(g) Date, time, and initials for all changes on the contract prior to acceptance;
(h) Provision setting forth the date by which, or the date range within, the closing shall occur and when possession shall be given to the buyer; and
(i) Proposed payment terms.
(3) A counteroffer completed by, or at the direction of, a licensee shall include any amendments to any term required by subsection (1) and (2) of this section and:
(a) Date and time of signing of the counteroffer for all parties who sign;
(b) Date and time when the counteroffer expires;
(c) Signatures of all parties making the counteroffer;
(d) The first and last name of the licensee who completed or directed the completion of the offer, if not found on the original offer or a previous counteroffer; and
(e) Date, time, and initials for all changes on the contract prior to acceptance.
(4)
(a) If a licensee presents an offer to purchase real estate for which an executory contract to sell the property is already in existence, the offer shall include language that indicates in writing that the offer is contingent upon the nonperformance of the existing executory contract.
(b) The contingency language required by paragraph (a) of this subsection shall indicate the disposition of any contract deposit and be:
1. Inserted by the licensee who completes or prepares the offer to purchase, if licensee is aware of the existing contract; or
2. Made by the listing licensee as a counteroffer.
(5) If financing is involved, a contract providing for the purchase of property shall specifically state:
(a) The manner in which the purchase shall be financed; and
(b) The amount of any encumbrance and whether it is to be underwritten by the seller or a commercial institution or otherwise.
(6) Any agreement for compensation, including rebates and inducements, from a licensee to his or her client shall be in writing.
(7)
(a) Prior to the expiration of a current listing agreement, another licensee shall not contact the seller to obtain a subsequent listing agreement.
(b) Notwithstanding paragraph (a) of this subsection, a licensee may discuss newly listing the seller's property that is currently listed if:
1. The seller initiates contact with the new licensee to obtain a new listing contract;
2. The proposed listing contract states that it shall not take effect until the expiration of the seller's current listing contract with the original licensee; and
3. The licensee and seller properly complete and sign the Seller-Initiated Listing Form. Nothing in this subsection shall prohibit a licensee from approaching a seller to list the seller's property following the seller's cancellation of their current listing contract or expiration of the current listing contract.
(8) If a licensee fails to comply with the requirements in this section, the licensee's conduct and dealings shall be considered improper in violation of KRS 324.160(4)(u).
Section 4. Required Disclosures.
(1) A licensee shall direct the seller-client of a single family residential real estate dwelling, duplex, triplex, fourplex, condominium, or townhouse to accurately complete and sign the Seller's Disclosure of Property Condition form required by KRS 324.360, including all necessary initials and signatures, unless the seller-client refuses and documents his or her refusal, or the licensee documents the seller-client refusal, on the Seller's Disclosure of Property Condition form.
(2) A licensee who is involved in the brokerage of a condominium transaction shall advise the client in writing of the client's right to receive the Condominium Seller's Certificate required by KRS 381.9203(1) and the purchasing client's right to void the sales contract consistent with KRS 381.9203(3).
Section 5. Prospective Client Disclosures.
(1) A licensee shall complete, time and date, and deliver to the appropriate prospective client the commission's Guide To Agency Relationships at the earliest of the following times:
(a) Prior to entering into a contemplated written agreement to provide real estate brokerage services for compensation with a prospective client;
(b) Prior to entering into a contemplated oral agreement to provide real estate brokerage services with a prospective client; or
(c) Prior to signing an agency consent agreement.
(2) The licensee shall solicit the signature of the prospective client on the Guide to Agency Relationships as acknowledgement by the prospective client of his or her receipt. The licensee shall maintain a record that the prospective client signed the Guide to Agency Relationships. If the prospective client refuses to, or does not, sign the Guide to Agency Relationships upon receipt, the licensee shall document the delivery, or attempted delivery, including a date and time, to the appropriate prospective clien.
(3) The completed Guide to Agency Relationships shall provide or include:
(a) The agency relationships available between the licensee and client or party in Kentucky;
(b) The first and last name of the licensee completing the form, the first and last name of the principal broker of the licensee, and the full name of the licensee's real estate company;
(c) The name of the prospective client; and
(d) The signature, time, and date of signing by the prospective client.
(4) The provisions of this section shall not apply to:
(a) The sale of real estate at auction; or
(b) A commercial transaction.
Section 6. Agency Consent Agreement.
(1) Prior to entering into a written agreement to provide real estate brokerage services or completing, or directing the completion of, a contract, offer, or lease for a real estate transaction:
(a) The licensee shall complete and deliver the Agency Consent Agreement to the prospective client; and
(b) Seek and obtain written consent to the Agency Consent Agreement from the prospective client.
(2) The commission's Agency Consent Agreement shall provide:
(a) The first and last name of the client, the first and last name of the licensee or licensee's and principal broker, and the full name of the real estate brokerage company;
(b) The specific agency relationship proposed between the principal broker of the real estate brokerage company, and any affiliated licensee of the real estate brokerage company, and the prospective client;
(c) If applicable, any known business, family, or personal relationship the licensee has with another party to the contemplated transaction who is not a party to the Agency Consent Agreement and an explanation of the nature of the relationship or relationships;
(d) Whether the transaction involves an unrepresented party; and
(e) Disclosure of prior contact with a former prospective client who is involved in the presently contemplated real estate transaction.
(3) The Agency Consent Agreement shall be updated, and written consent obtained, if the agency relationship initially established later changes.
(4) The provisions of this section shall not apply to a:
(a) Sale of real estate at auction; or
(b) Commercial transaction.
(5) The form of agency identified in the most recent Agency Consent Agreement shall terminate upon either:
(a) The provision of the agreed upon services; or
(b) At the closing of the contemplated real estate transaction.
Section 7. Affiliation.
(1) The principal broker shall be the owner of all written contracts for provision of real estate brokerage services, including items such as listing contracts, purchase contracts, and exclusive agency agreements.
(2) When a principal broker, or a licensee acting on behalf of the principal broker, enters into a written agreement with a client, an agency relationship is formed, and the client is the principal.
(3) Absent operating as a designated agency company, each licensee affiliated with the real estate brokerage company shall have the same agency relationship with respect to a client, prospective client, or party as the principal broker in an in-house transaction.
(4) If only one (1) broker is affiliated with a company, he or she shall be the principal broker.
(5) If one (1) or more additional licensees is affiliated with the company, one (1) broker shall be the principal broker registered with the commission.
(6)
(a) Unless there is a written contract stipulating otherwise, a licensee shall, upon termination of his or her affiliation with his or her principal broker, immediately turn over to the principal broker all records described in Section 9(1)(a)-(h) of this administrative regulation obtained during his or her affiliation regardless of whether the information was originally received from his or her principal broker, copied from the records of the principal broker, or acquired by the licensee during his or her affiliation.
(b) Nothing in paragraph (a) of this subsection shall require an affiliated licensee to deliver to the principal broker records which the principal broker is not under an obligation to retain consistent with this administrative regulation or records which are already in the principal broker's possession.
(7)
(a) A principal broker may be principal broker of more than one real estate brokerage company.
(b) A principal broker shall not also be an affiliate broker at another real estate brokerage company, except for as provided in KRS 324.112(5).
(8) A sales associate or broker affiliated with a principal broker shall only be affiliated with one principal broker at one office, or branch office, location.
(9) A real estate brokerage company may have more than one (1) physical office location, including branch offices.
Section 8. Facsimile and Digital Transmissions.
(1) A licensee may use facsimile (FAX) devices and digital transmissions to transmit and receive documents according to the provisions of KRS Chapter 369 and 201 KAR Chapter 11.
(2) A document received by facsimile devices or digital transmissions shall be immediately placed in the licensee's file and retained as required by this administrative regulation.
Section 9. Principal Broker Duties and Prohibitions.
(1) A principal broker shall confidentially preserve, either in hard copy or digital format, for five (5) years following its consummation or failure, records in one (1) file relating to any real estate transaction, which shall include:
(a) Any written offers to lease or purchase the real estate;
(b) The acquisition and disbursement of any monies;
(c) Listing and sales contracts or leases;
(d) Closing sheets;
(e) Seller's Disclosure of Property Condition and Condominium Seller's Certificate forms;
(f) Agency Consent Agreement forms;
(g) Guide to Agency Relationships forms; and
(h) Timeshare records.
(2) A principal broker who engages in property management shall also confidentially preserve, either in hard copy or digital format, for five (5) years:
(a) Property management agreements;
(b) Leases;
(c) Monthly owner statements and reports;
(d) Owner and unit ledgers; and
(e) Bank statements relating to property management.
(3) If the death or incapacity of the principal broker occurs, records required to be maintained pursuant to this section shall be maintained by:
(a) A new principal broker or a designated manager, so designated previous to the time of the death or incapacity of the principal broker to maintain the records;
(b) The real estate brokerage company of the principal broker at the time of the death or incapacity of the principal broker, if the company continues to be an active company;
(c) A licensee designated by the commission to maintain the records and serve as the principal custodian of the records, without any liability or obligation, other than to confidentially maintain the records and to provide the records to a party as required by law or by demand of the commission; or
(d) Any appointee of the commission who will agree to maintain the records and serve as the principal custodian of the records, without any liability or obligation, other than to confidentially maintain the records and to provide the records to a party as required by law or by demand of the commission.
(4) At the time of signing all documents, the principal broker, or an affiliated licensee of the principal broker, shall ensure that a copy of all documents are delivered to all parties executing the documents if the document has been provided, prepared by, or at the direction of the principal broker or an affiliated licensee of the principal broker.
(5) The principal broker, an affiliated licensee of the principal broker, shall ensure that a debit and credit type closing statement is furnished to a client upon closing a real estate transaction unless the financial institution, title agency, the attorney involved, or other authorized individuals, has prepared the closing statement.
(6) A principal broker shall not be a party to an exclusive listing contract which contains an automatic continuation of the period of the listing beyond the fixed termination date set forth therein.
(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 before 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 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.
(10) A principal broker shall implement and maintain an appropriate information security system that shall:
(a)
1. Notify licensees, management, employees, officer personnel, and clerical staff of company policy and procedures related to confidential information, including in-person interactions or discussions in the office environment;
2. Prohibit the disclosure of confidential information by licensees, management, employees,

office personnel and clerical staff;

3. Require notification to each client involved in a transaction, if the principal broker becomes aware of an unauthorized or inadvertent disclosure of confidential information relating to that transaction; and
4. Prohibit an employee from assisting more than one (1) designated agent in the same transaction if the designated agents represent different clients in that transaction.
(b) Nothing in this provision shall prohibit a licensee who is party to an Agency Consent Agreement from maintaining a separate individual client file containing confidential information.
(11) A principal broker of a real estate brokerage company that practices designated agency shall require that all documents that contain confidential information relating to a client be kept in an individual file maintained by the principal broker and accessed only by the principal broker, designated manager, or designated agent appointed by the principal broker to represent the individual.
(12) A principal broker who appoints a designated manager of the real estate brokerage company, a registered company branch, team, group, or other business arrangement shall notify the commission in writing of the name of the designated manager within ten (10) days of the appointment.
Section 10. Property Management.
(1) A principal broker, or an affiliated licensee, shall not engage in property management without a current written property management agreement.
(2) A property management agreement shall contain, at a minimum:
(a) The full name and address of the principal broker's real estate brokerage company as registered with the commission;
(b) The name and address of the client for whom the property is being managed;
(c) The address of the real estate being managed and the number of units;
(d) The effective dates of the agreement, and a provision stating whether the client agrees to automatic annual renewal;
(e) A provision stating the method for early termination;
(f) The amount of, or the method for computing, the amount of compensation to the principal broker;
(g) The amount of, or the method of determining, the minimum security deposit to be collected from tenants for each unit managed;
(h) The name and address of the bank where the principal broker's escrow or management account is held, and, consistent with KRS 383.580(1), the account number. This information shall also be contained in the lease;
(i) A provision which is in accord with KRS 383.580 setting forth the procedures governing returning or retaining the security deposit. This provision shall also be contained in the lease;
(j) A provision setting forth the conditions under which the principal broker may pay expenses related to the real estate being managed;
(k) A statement setting forth the date when the principal broker shall send the client an accounting of the transactions related to the real estate being managed;
(l) A copy of the form of the lease document which the principal broker shall have the tenant sign shall be attached to the agreement;
(m) A provision whereby the client certifies that he or she has received a duplicate copy of the agreement and the attached lease form; and
(n) The signature and date of signature of the client and the principal broker.
(3) A principal broker shall maintain, in electronic or written form:
(a) An owner ledger for each client of real estate being managed;
(b) A unit ledger for each unit in the real estate being managed; and
(c) Upon the written request of the client of the property being managed, the principal broker shall provide a unit ledger by tenant.
(4) Money received shall be deposited into an escrow or management account of the principal broker within three (3) business days of receipt.
(5) The amount of money received shall be entered into the owner and unit ledgers.
(6) A receipt shall be given for money received.
(7) Expenses paid by the principal broker shall be documented by invoice or receipt, by unit, and retained with a principal broker's records.
(8) Adjustments to a security deposit shall be made in accordance with KRS 383.580. Adjustments shall also be entered on the owner and unit ledgers.
(9) On the date determined by the parties, a principal broker shall send a monthly accounting to a client of transactions related to the real estate being managed, by unit.
(10) Within sixty (60) days of the termination of a management agreement, a principal broker shall send the client a final accounting that contains any transaction that occurred after the last monthly accounting.
(11) A principal broker who has an ownership interest in the real estate being managed shall:
(a) Maintain a unit ledger for each unit in the real estate being managed; and
(b) Comply with KRS 383.580 relating to receipt, deposit, and adjustment of tenant security deposits.
Section 11. Incorporation by Reference.
(1) The following material is incorporated by reference:
(a) "Seller-Initiated Listing Form", KREC Form 403, 10/2019;
(b) "Seller's Disclosure of Property Condition", KREC Form 402, 12/2019;
(c) "Condominium Seller's Certificate", KREC Form 404, 10/2019;
(d) "Guide to Agency Relationships", KREC Form 400, 10/2019;
(e) "Agency Consent Agreement - Buyer", KREC Form 401B, 10/2019;
(f) "Agency Consent Agreement - Seller", KREC Form 401S, 10/2019.
(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Real Estate Commission, 656 Chamberlin Avenue, Suite B, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available from the commission's Web site: www.krec.ky.gov.

Notes

201 KAR 11:121
17 Ky.R. 2295; 2691; 3105; eff. 4-12-1991; 27 Ky.R. 1509; 2708; eff. 4-9-2001; 31 Ky.R. 1329; 1647; eff. 4-22-2005; 34 Ky.R. 829; 2277; eff. 5-2-2008; 36 Ky.R. 429; 1012; eff. 12-4-2009; 40 Ky.R. 2812; 41 Ky.R. 741; eff. 10-31-2014; 46 Ky.R. 582; 1438; 1810; 2027; eff. 12-16-2019.

STATUTORY AUTHORITY: KRS 324.121, 324.160(4)(e), 324.281(5), 324.282, 324.360 NECESSITY, FUNCTION, AND CONFORMITY: KRS 324.281(5) and 324.282 require the Real Estate Commission, with the approval of the executive director of the Kentucky Real Estate Authority, to promulgate administrative regulations necessary to carry out and enforce the provisions of KRS Chapter 324. KRS 324.121 authorizes a principal broker to designate an affiliated licensee to act as agent for a seller or lessor, buyer or lessee, or prospective buyer to the exclusion of all other licensees associated with the principal broker. KRS 324.360(2) requires the commission to promulgate an administrative regulation authorizing a seller's disclosure of conditions form with content as set forth by KRS 324.360(3). KRS 324.160(4)(e) authorizes the commission to take disciplinary action if a licensee acts for more than one (1) party in a transaction without the knowledge of all parties. This administrative regulation establishes requirements for designated agency; the required Seller's Disclosure of Property Condition form; a specific process and form for disclosing prior relationships between parties in a residential transaction; standards and requirements, to inform and set certain standards for licensees and to protect the public, regarding delivery of signed documents, broker supervision, broker record retention, sales associate affiliation and termination, and written agreements between licensees and consumers to provide real estate brokerage services, including standards for listing and purchase contracts; and behavior considered improper conduct.

State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.


No prior version found.