Home Owner Quicksand

If you own real estate beware. Last Wednesday, Russ Cofano wrote of new changes to the Washington Contractor’s Registration law that were made this summer. The real estate investment community is in shock that a change in definition of who must be a contractor with ramifications this drastic, slipped by in the guise of consumer protection. 

Although this applies to the ‘fix and flippers’ and you may think they need to become contractor’s in order to protect the public as they make a profit on the real estate they buy, fix and sell, don’t be too quick to applaud this new change.

In fact, ALL real estate owners, including owners of only a primary residence, should be equally as shocked as this definition appears to affect all property owners and not just investors.

The repercussions of this law go deep and have dire consequences.  As many of us understand the law, any homeowner that does any repairs and maintenance or remodeling to a home in anticipation of a sale within 1 year MUST BE A CONTRACTOR. Suppose you have a sale on your home, you have an inspection and you must now repair a few items.  What we believe this new definition maintains is that you, the homeowner, MUST BE A CONTRACTOR.  How impractical is this given that a contracto’s license requires a $12,000 bond, unless the homeowner has sterling credit in the area of 760 and can get insurance for the bond.  Even with that, the cost of the contractor’s license, insurance and bond  would be around $3000 or higher not to mention, the time that would be required to get a contractor’s license.

At the REIA (Real Estate Investors Association) monthly meeting on Monday night, even the 2 attorneys invited to explain the consequences of this new definition, were at a loss.  Neither wanted to take a position as neither had yet spoken with the Department of Labor and Industries who will enforce the law.

Can you imagine every homeowner needing a contractor’s license who a: has work orders persuant to a sale or b: remodels their, say bathroom, prior to putting their home on the market, or c: does maintenance or remodeling work on their home prior to renting it out within the year. Any of these instances could require a contractor’s license.

The investment community is wondering what this all means. Many investors purchase homes through their retirement accounts through self directed IRA’s or other LLC’s or corporations.  Does this law mean that the LLC must be a contractor, or does it mean that the owners of the LLC must be a contractor or both.  In the case of the self-directed IRAs buying real estate, there may be prohibited transactions if either the LLC or the owner of the IRA become a contractor.

My question is, where was the Realtor’s Association when this was enacted and why didn’t they alert us all.  I will find that out. It’s my understanding that they were directed to take a no opposition stand.

I hope this all works out in a reasonable manner. We’ll see.