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.
All very good questions Eileen.
I wrote some of my concerns in a series of questions in Russ’s article last week because this law does not seem to have any benefit when it comes to homeowners, or even to buyers who will be in the same position once they become homeowners.
This new law seems like it will put a “freeze” on any homeowner wanting to improve their home, or even maintain their home. No one can predict where they will be in a years time. What if after having work done to their home (home improvement, remodel or major maintence) the homeowners have an unexpected life change; job relocation, job loss, divorce, death, that causes them to have to sell or rent?
What will happen to their ability to sell or even to rent?
What about selling their home? Many homes benefit by having work done to them before being place on the market, does this not impact the homeowners selling price? This seems to restrcit the marketability of selling their home for the best price.
Many houses that are bought for rentals need work done to them before they can be rented (sometimes to even be habitable) this will certainly restrict the rental market even more.
I have already talked to some clients about what was their intention to update their master bathroom in anticipation of selling next spring. Right now we are in a “wait and see” position to find out what effect this law has on their ability to do this.
I hope there are some answers soon!
What of the lenders in this state that have to take back property? The properties are all most always in need of repair. They will only have contractors to sell to at auction. The REO’s piling up on the books will require work to sell. They will have to be contractors to repair and resale. Will we lose lenders?
And what is our liability as agents?
REIA is meeting with L&I next Tuesday to get some response.
Great question regarding foreclosing lenders, Bob. That would be another can of worms.
My impression from my short residence in WA state so far is that the state legislators and the people who plan the roads are completely insane.
On this issue, I agree and wonder what could anyone have been thinking. Shouldn’t there be a oversight agency that measures the affect of any new change, especially one with just far reaching effects? Seems insane.
My husband used to work for DOT and could give you a run for the money on complaining about the roads.
You wrote:
“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.”
I took the words “in the pursuit of an independent business” to mean that this dos NOT apply to a homeowner fixing up a home to sell. How can a guy remodeling a bathroom before he sells his house be considered “in the pursuit of an independent business”???
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Well, therein lies the rub. It’s totally impractical, but the attorneys and others at the REIA meeting did assume that it could be interpreted that way. Shirley and Fox Henderson fro REIA are trying to get a meeting with L&I next week to find out for sure.
Hello,
Trying to flip houses is one of the reasons why the Real Estate bubble has increased. I think that you should consider that there are many people who need homes that aren’t filthy rich and cannot help you make a million dollars in one year.
Sorry to be so critical but we need to think about these things.
John
http://www.listpropertiesnow.com
My understanding from the political arm of the Washington Realtors Association is that they were indeed taking a no opposition stand to this bill because they were under the impression that it was directed at flippers, not everyday homeowners. Had they understood (and this may be their fault for not adequately reviewing the bill) that it would affect us all, they would have fought it tooth and nail. I am told that both L&I and BIAW agree that the intention was to address flippers, not mom & pop homeowner and they will work to correct this ramification of what is essentially a poorly written piece of legislation.
Washington Realtors are currently addressing this with L&I and will see if they can correct this by clarification via letter, rulemaking or if additional legislation is necessary.
That’s good to know. Nate, do you have a point person at WAR? I know alot of investors that are moving to a hold position until there is some clarity.
Eileen,
I do have a couple of people I asked about this, all top in the political arm of WR (we’ve dropped the A – sounded to military), though they are waiting to have final word from L&I beofre they go on record. I asked the question of them because as a member, and a contributor to RPAC I would have expected them to oppose this and am kind of shocked they didn’t.
Can you give me their names and numbers?
This new law has absolutely nothing to do with joe blow homeowner or someone independantly flipping homes in general. Check out RCW 18.27. It’s clear as day. There are many exceptions to this RCW as well here’s one.
“(6) Any construction, alteration, improvement, or repair of personal property performed by the registered or legal owner,…”
Gene
Fixed the link…Oh…Hi!