Kentucky Real Estate Contracts: Exam Study Guide

Contract law is a major topic on both sections of the Kentucky PSI real estate exam. Knowing the elements of a valid contract, how Kentucky purchase agreements work, and the state-specific seller disclosure rules will help you pass the state section.

Elements of a Valid Contract

Every valid Kentucky real estate contract must have:

Offer and acceptance (mutual assent / meeting of the minds)
Consideration (something of value from each party)
Competent parties (18+, sound mind)
Legal purpose (lawful object)
In writing and signed (Statute of Frauds — all real estate contracts must be written)

Contract Types

Bilateral — both parties exchange promises (the standard purchase agreement) Unilateral — one party promises; the other accepts only by performing (option contract) Executed — all obligations complete (post-closing) Executory — obligations remain outstanding (between acceptance and closing)

Kentucky Purchase Agreement

The Kentucky purchase agreement is the primary contract for buying and selling real property. Key elements:

Legal description of the property
Purchase price and earnest money amount
Financing contingency — buyer exits if loan is denied
Inspection contingency — buyer's right to inspect; negotiate repairs
Appraisal contingency — protects buyer if property appraises below purchase price
Closing date and possession date
Inclusions and exclusions — personal property vs. fixtures

Kentucky Seller's Disclosure of Property Condition

For most residential property sales, Kentucky requires sellers to complete the Seller's Disclosure of Property Condition form. This Kentucky-specific form name is frequently tested on the state exam.

Key rules: - Must be provided before or at the time of purchase agreement - Sellers must disclose known material defects — not latent defects they're unaware of - Does not create a warranty; does not replace a professional inspection - Buyers may have rescission rights if the disclosure reveals new material information

Kentucky Consumer Protection Act

Kentucky's Consumer Protection Act (KRS Chapter 367) can be applied to real estate transactions. Misrepresentation, fraud, or deceptive practices by a licensee may trigger Consumer Protection Act claims in addition to KREC disciplinary action.

Earnest Money and Trust Accounts

Earnest money must be deposited into the broker's trust account promptly
Commingling with operating funds is a KREC violation
Disputes are resolved per the purchase agreement or KREC procedures
Brokers may face license suspension for trust account violations

Default and Remedies

If the buyer defaults: - Seller may retain earnest money as liquidated damages - Seller may sue for specific performance or damages

If the seller defaults: - Buyer receives earnest money refund - Buyer may sue for specific performance or rescission

Kentucky Foreclosure (Both Tracks Available)

Kentucky is unique in allowing both judicial and non-judicial foreclosure:

Judicial foreclosure — court-supervised, longer process, provides redemption period
Non-judicial foreclosure — faster process allowed under deed of trust with power of sale clause

This dual-track system is a high-frequency Kentucky exam topic. Know that both are available and that the method depends on the security instrument and its terms.

Kentucky Deed of Trust

Kentucky uses a deed of trust as the primary real estate security instrument. The trustee holds bare legal title until the loan is paid. Kentucky is NOT a community property state — property acquired during marriage in Kentucky is not automatically jointly owned.

Kentucky Homestead Exemption

Kentucky's Homestead Exemption protects a portion of a primary residence's equity from certain creditor claims. It is typically tested alongside foreclosure questions.

Practice Kentucky contract questions at [CARealestate.com/states/kentucky](https://carealestate.com/states/kentucky).