BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Recommending Licensed and Unlicensed Contractors
Q: I was recently in escrow with my buyer on a home that needed work. The home inspector recommended work to the deck. I got a bid from a licensed contractor who estimated $7,500 for the repair work which included structural work plus some electrical and plumbing related to the hot tub built into the deck. I also referred the buyers to Tony, a handyman who has done good work for me on my home. Tony said he could do the work for $3,000. Buyers chose to go with Tony who did the work. Now, after close of escrow, there were problems with the deck. Buyers contacted a licensed contractor who said the work should have been done with a permit, was not up to code and, in fact, needed to be ripped out and re-done. Buyers now blame me. I was just trying to help.
A: There can be problems referring clients to unlicensed contractors. It raises the problem of the work being completed by an unlicensed person, as well as the issue of whether permits are required and have been “pulled” and “finaled.”
1. LICENSE REQUIREMENTS: In California, anyone who contracts to perform work that is valued at $500.00 or more for materials and labor must hold a current, valid license from the Contractors’ State License Board (CSLB) in the specialty for which he or she is contracting.
Unlicensed contractors can pose a risk because they expose the homeowner to financial harm in the event of injury or property damage. Few unlicensed contractors have bonding, workers' compensation or public liability insurance.
2. HOW DO I DETERMINE IF THE CONTRACTOR IS LICENSED? Ask to see the contractor's pocket license and some additional form of identification. The name on the pocket license should be the same as the name of the contractor or business under whose name the contractor is working.
When you establish that the contractor's or company's name matches what appears on the pocket license issued by the Contractors’ State License Board, and before signing a contract for work, check the CSLB Web site, www.cslb.ca.gov, or call (800) 321-CSLB, to find out if the license is valid. The contractor's license status page will also help you verify the contractor's business address, describe the kind of work that the contractor can perform, if any legal action has been taken against the contractor's license, and if the contractor is properly bonded and insured.
3. PERMITS: Different cities and counties have different requirements as to when a permit is required for work on a structure. Here is a link to the CSLB web page listing the permit requirements for each city and county:
http://www.cslb.ca.gov/Consumers/Hire_A_Contractor/Building_Permit_Requirements.aspx
But basically, if the work involves structural, mechanical, electrical or plumbing, a permit is required. Some of the items which may require permits include: building alterations (both interior and exterior), additions, plumbing, heating, ventilation, air conditioning, duct work, fire protection modification, foundation walls, retaining walls, relocating or adding partition walls, furnace replacement, water heater replacement, etc.
The only way to be sure that a permit is not needed is to contact the appropriate local government building department. Most permit requirements are based on the Uniform Building Code, Uniform Plumbing Code, Uniform Fire Code, National Electrical Code and the International Mechanical Code; but most cities and counties modify them – sometimes substantially.
PRACTICE TIPS:
1. Always recommend licensed contractors who will determine if a permit is necessary for the work being done.
2. Recommending unlicensed contractors or “handypersons” can lead to liability for you and your brokerage.
2. It doesn’t have to cost more to do it right. Buyers should talk to several licensed contractors, and may get widely varying bids based on how much the contractor wants that job at this time. Very busy contractors tend to bid high.
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is 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.
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