BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Prepping a House for Sale
Q: I am a listing agent and I often recommend to sellers that they upgrade their property to make it more attractive to buyers. I have a team of contractors, landscapers, painters, etc., with whom I have worked that I recommend to my sellers. In my marketplace, most listing agents will offer such services so I also feel compelled to do so in order to compete.
Recently, I was in competition for a large home in a most desirable neighborhood. It had substantial deferred maintenance because the seller was basically broke and couldn’t afford to keep the property up. In my listing presentation I recommended numerous upgrades, including new landscaping, a new perimeter fence (the old one was falling down), exterior and interior painting and having the hardwood floors re-done. Seller told me she had no money for all of this. I told the seller that if she listed with me, I would front the money and get paid at COE. She agreed. I got bids which the seller approved and she signed the contractors’ contracts when she signed my listing agreement.
My upgrade team went to work and, because seller was gone during this time, I agreed to supervise the work. But, three weeks later I received a call from a very upset seller. She stated that when she returned home and saw the work done in her absence, it was not up to par. She stated that the work was sloppy, poor materials were used in the fence, and the paint was a different color than that approved. Most of the work had been done at that point, so I met the seller at the property where she told me she was cancelling my listing right then and there. And, she is refusing to pay the contractors.
I was shocked and, after talking to my manager, I told seller that we have a binding listing agreement and intend to enforce it. Next, I received a letter from seller’s attorney who not only reiterated that the listing contract is cancelled, but that I am responsible for the cost of repairing and replacing the poor workmanship of “my” contractors whose work I supervised. Further, stated the attorney, if the contractors sue and/or file mechanics’ liens, she will hold me responsible for all costs plus seller’s attorney fees.
Can I enforce the listing agreement?
A: Not likely. And that is the least of your problems. This situation points out the inherent perils of working with sellers to upgrade their properties for sale.
Variations on this practice include:
1. The agent hires the contractors
2. The agent fronts the money (sometimes before the listing is signed)
3. The agent just recommends one contractor or vendor for each item of work/repair
4. The agent supervises the work.
5. The agent has no written agreement with the seller
You are licensed to sell real estate, not remodel property for clients. Obtaining several bids and forwarding them to the owner is as far as you should go. There are numerous risks in going further, including:
1. If you sign the contract with the contractor, you are responsible for the work, and the cost, since you hired the contractor. If the owner doesn't pay the contractor, they can place a mechanic’s lien on the property, or sue you directly on the contract.
2. If you are supervising the work on the property and the owner is not happy with the work, you will be blamed.
3. If you were to hire more than one contractor (carpenter, plumber, electrician, etc.), you then are acting as a general contractor (“GC”) without a license for which there are penalties.
4. Finally, if there is a lawsuit involving, or related to, the work on the property, your brokerage’s E&O Professional Liability Insurance will likely not cover that portion of the claim, because the E&O carrier may allege that you are not engaging in activity for which a real estate license is required.
In addition, on another front, if you were to hire contractors for an investment property, not for sale but to make it ready for lease, you could also be accused of being a property manager.
PRACTICE TIPS:
1. The seller, not the real estate agent, should sign any contracts for the repair or remodel of seller’s property.
2. Even though you have your favorite contractors, it is wise to recommend three contractors for each specialty, just as you would for any other vendor/contractor/inspector.
3. If you are an agent with a General Contractor’s license, you should only engage in the repair or renovation of properties that are going to be sold through your brokerage only with the knowledge and approval of your broker.
4. If the work is going to be done with permits, which it should, then the seller will have to either hire a GC, or take out the permits him/herself, essentially acting as the GC.
5. But, some jurisdictions have limits on a seller acting as a GC in that they then cannot sell the property for a period of time. In fact the California Contractors’ State License Board has limitations on when a seller can act as a “Builder-Owner” on their own property and not need a GC license. Any seller interested in doing so should check with this agency at: http://www.cslb.ca.gov/
6. If you are recommending contractors/painters/landscapers to your seller, have them sign the attached Advisory.
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright 2017 Broker Risk Management 03/31/2017
SELLER ADVISORY FORM FOLLOWS:
(Broker Name)
CONTRACTOR LIST AND ADVISORY
PROPERTY ADDRESS: ______________________________________________________________________
1. In conjunction with proposed upgrading, painting and/or landscaping your Property in preparation for marketing your Property for sale, attached is a list of various contractors, painters, landscapers and other service providers. (See attached list.)
2. I am providing you with the attached list of contractors, painters, landscapers, service providers and other professionals for your convenience. This list is compiled from those providers with whom I, and/or our agents, have had favorable experiences in the past or who have been favorably recommended to us. However, these providers are not endorsed by us, and the results in your Property are not, and cannot be, guaranteed by us.
3. Prior to hiring any provider on this list, it is important that you interview at least three and choose the one whom you judge to most closely meet your needs. If the work being done requires a contractor’s license, you can check whether the contractor holds a currently-active contractor’s license by checking the Contractor State Licensing Board at: http://www.cslb.ca.gov/
4. Also, you should verify if the contractor has currently-active insurance coverage for Civil General Liability and, if the contractor will, by using employees on your Property, have Workers’ Compensation coverage. It is also recommended that, if you have any questions regarding the various vendor contracts, you consult with a qualified California real estate attorney.
5. If several contractor specialties (carpentry, plumbing, electrical, roofing, etc.) will be working on your Property, we recommend that you consider hiring a licensed General Contractor to oversee and supervise the work. Ask the General Contractor to obtain “Lien Releases” from all subcontractors and materialmen who provide services or materials to the project. See for example: http://www.cslb.ca.gov/Resources/GuidesAndPublications/LienReleaseForms.pdf
Real estate agents are not qualified to give tax or legal advice nor can agents act as general contractors or supervise the work of contractors. It is important that sellers seek appropriate professionals for advice on all matters related to any work done on their property.
Seller: __________________________________ Date: ______________________
Seller: __________________________________ Date: ______________________
Agent: __________________________________ Date: ______________________