BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
When preparing homes for sale or addressing repairs in connection with a real estate transaction, many listing agents and sellers will use handymen and other unlicensed professionals to undertake the work or improvements. While this strategy can save costs, it can create significant risks for the seller and the agent.
California law allows an unlicensed person to complete small projects at a property up to $1,000 without obtaining a contractor’s license if they do not hire workers and no building permits are needed. If a consumer’s project under $1,000 requires workers or permits, a contractor’s license in the appropriate license classification is also required. Therefore, it is considered a violation of the law for a handyman to perform work valued at more than $1,000 or if a permit is required.
SCENARIO NO. 1: Listing agent retains a handyman to perform repairs and improvements at the property. Because the handyman is unlicensed, he does not have liability insurance. The handyman’s bill is $1,500. The use of the handyman and the work performed was not disclosed to the buyers. After the close of escrow, the buyers noted that much of the work was faulty and asserted a claim for non-disclosure and construction defect. Because the handyman was not licensed, he did not have insurance nor any other resources to compensate the parties for the defective workmanship. Because the agent retained the handyman and failed to disclose the work that was performed and who performed the work, the agent was liable for the defects.
RESPONSE: The listing agent should not hire people to perform work at a listed property; only a seller should hire work to be completed at the property. Also, a handyman should not be used for work valued at more than $1,000, or for work requiring a permit. If a handyman is used, that fact should be disclosed to a buyer including identifying the work that was performed.
SCENARIO NO. 2: Agent and seller retain a painter to paint the property. The painter’s license had lapsed and was not current. The painter made significant errors in painting cabinets, leading to the destruction of the cabinets. Seller sued the agent for improper recommendation of the painter.
RESPONSE: Civil Code §1102.4 provides that real estate agents cannot be held liable for errors and omissions of other “professionals.” Therefore, if another professional makes an error or mistake, agents are not liable. For example, if a home inspector, engineer, appraiser, etc., miss a defect and fail to identify it for a buyer, a real estate agent cannot be responsible for that error. However, this protection is not available if the person being referred is not a licensed professional. This means that the referral must be licensed, have insurance, and be qualified to perform the work at issue. If a referral as a license which expired or lapsed, it is unlikely that an agent could invoke the protections of Civil Code §1102.4. Therefore, it is important that when agents make referrals, they ensure those referrals are professionals including having proper licensure and insurance.
PRACTICE TIPS:
- Always recommend licensed contractors for the work being done at a client’s property. Recommending unlicensed contractors or handymen can lead to liability for you and your brokerage.
- If agents are providing referrals to clients for contractors or other professionals, agents need to ensure those professionals are qualified and have appropriate insurance and are licensed for the work being done. A contractor’s license status can be confirmed with the Contractors State License Board (“CSLB”) at:
https://www.cslb.ca.gov/OnlineServices/CheckLicenseII/CheckLicense.aspx
- If agents are referring family members or friends who are contractors to sellers or buyers, they need to be extra cautious in making those referrals to ensure that the referrals are properly qualified and licensed.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 LLP. 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 practice.