Who Needs to Register as a Contractor?

There have been some questions and discussion here on Rain City Guide about the changes made on July 23, 2007 regarding who needs to register as a contractor.  This change was made as to who has to register as a contractor and:

“Requires property developers, consultants, and some property owners to register as contractors: Owners that build and develop multiple structures, e.g., “spec” houses, construction consultants and property developers who make improvements to property for sale must register as a general contractor.”

Russ Cofano posted about the changes in “Are YOU a Contractor? “on October 3rd, and Eileen Tefft posted another in “Home Owner Quicksand ” on October 10th, both sparked comments and questions.

The Department of Labor and Industries has posted a “Frequently Asked Questions about changes to the Contractor Registration Law”  (pdf, page 2) which answer a few of the questions that came up on the earlier posts. 

The most basic question that I had was do homeowners have to register as a contractor to get their home market ready? 

#1:  “I have owned my home for three years and am fixing it up to sell.  Do I have to register to be a contractor?  No, if you have owned your home for more than 12 months, you are exempt from the contractor registration requirement”

I have also found out that there may be some exemptions to the 1 year rule regarding improvement work a homeowner has done to their home.  The exemptions would be due to circumstances that cause a homeowner to have to sell in less than a year, such as a divorce, sudden job transfer or loss or other circumstances that fall outside of a homeowners control.  The Department of Labor and Industries will evaluate, and do some background research to determine the validity of the circumstances to determine if the homeowner would be exempt from having to be registered as a contractor.

Another question I had was if you recently purchased a house as a rental property and it needs work before leasing to tenants, do you have to be registered as a contractor?   

#3:  “I am purchasing a residential properly that I am going to remodel or make improvements and then rent it out.  Do I need to be a registered contractor?  No. 

When I called L & I (800-647-0982) to find out more, I spoke with Dennis Yonker, who told me that they are scheduling Public Hearings to get feedback from the public.  While the dates are not scheduled as of now, I have been told that they will be scheduled sometime in the last week of February and/or early March of 2008.  I will do a follow up post with dates for the public hearings when available. 

Dennis (or someone else from the dept.) would also be available to “large groups” to explain and answer questions regarding the changes.  Please remember that they would need at least a 2 week notice to schedule it in.  Dennis has allowed me to post his phone number, and can be reached directly at 360-902-6303.

Because the law is still so new, there is much uncertainty regarding how the law applies to homeowners.  For specific questions, Dennis can help with answers by calling the number above, or contact your attorney to determine the answers to your particular circumstances.

UPDATE: I got an email from Dennis with the dates for the Public Hearings and the message to contact him to check for any changes:

Public hearing dates for testimony on sub House Bill 1843 and changes the 18.27 RCW Contractor Registration Law are set for:
Feb 26-08 10:00 am start in the L and I Tukwila service office. ( 12806 Gateway Dr. 98168)
Feb 28-08 9:00 am start in the L and I Tumwater service office. ( 7273 Linderson Way S.W. 98501)
Mar 6-08 10:00 am start in the L and I Moses Lake service office. ( 3001 W. Broadway Av. 98837)
These dates may change, so contact me, one to two weeks prior to the first testimony/hearings  for updates


58 thoughts on “Who Needs to Register as a Contractor?

  1. It looks like a straight-forward anti-flipper law. I can’t tell you how many crappy flips I walked through where they had done incredible damage to a home that would have forced me to spend tons of money to fix. My main pet peeve is the garage converted to media/bed room. No heat, thin carpet directly over cold cement, poorly installed, uninsulated wall or sliding door where the garage door used to be, and a driveway running into it. All to add a couple hundred sq. ft. with dreams of getting an extra 100 grand.

    I MIGHT have bought it, if you hadn’t desecrated it first, moron flipper.

    A great law to keep idiot amateur DIYers with visions of sugar-plum “sweat-equity” from degrading the existing Seattle housing stock.

  2. Hi Biliruben,

    Yes, the change is geared towards “flippers”, as well as small time builders.

    The poor remodels you are talking about aren’t always done by flippers though. Often times they are done by owners who make changes to their homes for their own use. Sometimes the “improvements” are done at the lowest cost, to improve or increase living space (your example of the garage conversion) and to save money they are willing to make compormises. This law change will not prevent those kind of “improvements” if the homeowner owns the house more than 1 year. So you will still see these kinds of properties on the market.

    One way I can see flippers possibly getting around this is to buy a house, rent it, and once they have completed their 12 months of ownership, then fix and sell the property. This does add time as well as the challenge of being a landlord to their costs which would diminish the financial returns on flipping houses.

  3. Well it’s nice to get a bit of certainty as to the new law. Thanks for the report!

    I agree a lot of Seattle area houses are ruined by remodels, but I don’t know who does them. Much of the recent work I see by flippers is higher quality than the older work I see.

  4. Hi Kary,

    You’re welcome!

    I agree that the homes that are professionally flipped tend to be of higher quality, especially for higer end, because they have an eye towards who their target buyer is.

    The homes that show the most poor jobs of remodeling, that I have seen, are almost always done by someone who has been living in the home (usually an older one) for awhile and wants to make improvements for their own personal use and keep costs down. Often these house are “quirky” ones to market when they are finally put up for sale.

  5. That’s a good point, Deborah, and I’m sure some are just poor, misguided remodels on the cheap. No accounting for taste! I have no interest in regulating that.

    Most, you can look up the sales records, and it’s obviously a flip.

    Questionable decisions aside, my guess is that the law is more likely geared towards safety. A resident, you assume they will make a bit of effort to avoid risking electrical fires, incredible collapsing decks and house-o’-cards additions.

    A flipper, the rule appears to be: quick and dirty with the work out of site, and high-end finishes for maximum mark-up.

    Was that structural beam really necessary? Nah! And look how nice the vaulted ceiling looks now! Worth an extra 200K for sure! You betcha.

  6. Requiring contractor status doesn’t directly lead to safety, but it does help eventually flush the worst people out of the business. And the emphasis is on eventually.

    Licensing requires a relatively nominal bond be posted, which provides more of a feel good status than real protection. But absent that bond, the license goes away. And absent the license, the contractor is in a world of hurt if they need to sue or get sued.

  7. Nice post, Deborah! I personally am happy to see a little bit more strength put into regulating flippers (and I do represent some) but one thing a contractor pointed out to me is that by making these folks become GC’s it also forces them to use licensed plumbers and electricians. Could part of the push to do this have come from pressure in those industries to preserve their own businesses and not lose out on potential business? I’m just wondering.

  8. Pingback: Team Reba Real Estate » Flipping out?

  9. Hi Deborah,

    Great post, and thanks for keeping us up to date on this law. 🙂

    I too agree this law appears to be a consumer protection-based anti-flipper law; but I question its real effectiveness. I’m all for protecting consumers from unscrupulous biz people in a superior bargaining position; but I don’t think this particular law actually helps consumers as our glorious legislature appears to think so. To me, the real problem is that buyers need to vigilantly exercise their due diligence, and thoroughly check out what they’re buying before they buy it…bastardizing the contractor statute to require sellers who’ve done work on their homes shortly before selling their home to register as contractors doesn’t meaninfully protect home buying consumers, in my opinion. I suspect L & I sees flaws in this law too, given that they’re holding these public comments.

    OK, that’s my $0.02 worth on this subject. Please excuse my strong language…but it gets my point across, for whatever that’s worth. 🙂

    Again, great post Deborah…keep up the good work!! 🙂

  10. Hi Kary,

    Yes, becoming a licensed General Contractor is fairly simple. It is inconvenient though for someone who wants to do simple flips, so you’re right it probably will weed out some who won’t want to comply.

  11. Hi Reba,

    Thank you!

    I think you maybe right about it perhaps providing some protectionism for the specialty contractor (plumbers, electricians, roofers, flooring, cabinet installers, tree trimmers etc.} industries, afterall this is the Department of Labor and Industries.

    However, it also benefits the public by making sure the work is done by knowleable people who should be doing it correctly.

  12. Hi Joe,

    Thank you!

    This topic needed some additional clarification to help our clients understand how it effects them.

    Actually, most homeowners won’t be effected by this. Homeowners (as long as they have owned the property more than 12 months) are allowed to have work done on the house as they see fit. So homeowners can do pre-listing improvements or have work done to satisfy “Subject To Inspection” requests without being a registered general contractor or hiring a GC to oversee a couple of specialty contractors.

    Those homeowners who have owned their property less than 12 months, who have already had work done in anticipation of living there, and suddenly find themselves having to sell for reasons beyond their control, will be given exemptions after L & I investigates and satisfies the legitimacy of the claim. I am unclear how L & I will actually administer this.

    You are right about buyer’s still needing to exercise their due diligence, that has not gone away! 🙂

    L & I does see the need to hold the Public Hearings, although I don’t know if that is standard practice or if there is some exceptional “muddiness” to the new requirement that needs further imput from the public.

  13. I’m wondering about people who bought property prior to this change and started or even finished working on it before the change. What happens if one of us is called to sell it? What are we supposed to do differently? If someone calls us to sell a house, how much do we get involved in this issue?

  14. Hi ARDELL,

    It is my understanding that if the work was done before the change took place (7-23-07) regardless of when the property was purchased, then this change does not apply.

    However, if work was done after that date, and the property was not owned more than 12 months I am not sure what L & I intends to do to identify and enforce the change, since the average homeowner or even “flipper” would not necessarily know about the change. Many RE agents would not necessarily know that this is something that would need to be addressed either.

    That is a good question that I had not thought of: What if someone wants to sell “now”, owned the property under 12 months, did several kinds of improvements in order to sell, and did not know about this change. How could this be remedied so that the property owner could continue with his plans to sell his property without being penalized?

    Also, what about properties have been on the market that don’t fulfill the criteria.

    From a RE agents perspective what kinds of questions to ask our sellers to keep them in compliance, and questions to ask to best represent our buyers.

    I will call Dennis tomorrow to see if I can get answers to these particular questions.

    While I think that finding out the answers to these questions benefit many people here on RCG, I urge individuals to contact Dennis (or their attorney) to get the best answer for their particular circumstances, since I am only getting broad, general answers.

  15. Yes, I think that may be one reason why they are conducting the Public Hearings.

    There has been very little information to the real estate community, which is surprising considering it’s impact on selling homes. If Russ had not posted his article on October 3rd about the changes that were effective July 23rd, we would still be in the dark.

    I asked my broker about what effect it would have, and if he could get more information from the company to get some answers. A few weeks later we were given a copy of the “Frequently Asked Questions about the Changes to the Contractors Rregistration Law” during an office meeting, but no other information beyond that. This is why I called The Dept. of Labor and Industries get answers and share them here.

  16. Getting licensed is not just posting a bond but also getting insured.

    Did you know that no contractors insurance issuer in Washington will insure a new contractor who is also a Real Estate Broker? Turn in your license and become an agent for someone else probably would work. Wow, I have to quit my job and shut down my business (I’ll pull a Trump: “you’re all fired”), to HIRE a general contractor, I can’t simply own properties anymore as a passive investor. This is an attack on property rights, you should be able to passively own property and hire a general contractor to do any work.

    I’m not a flipper but a landlord and the law specifies buy sell or lease, property. To legally fix something on my broken rental here is the process: If something breaks, I let the tenant move out, hire a contractor to fix it and let it sit 12 months before leasing again and hope nothing breaks during the 12 months while it sits vacant–hmm I wonder if my insurance covers a vacant house, nope. I am not insurable as a contractor because I am a Real Estate Broker but if I quit my job, as a landlord it would be in the $700-$1000/month range because insurance companies think landlords get sued all the time (That’s right a grand a month for the privilege of hiring a general contractor to work on your own property, better raise the rent). I’m not a flipper, I’m a buy and hold investor, but I rent out my investments. Read the exemption “this exemption shall not apply to any person who performs the activities of a contractor on his or her own property for the purpose of selling, demolishing, or leasing the property;” This applies to landlords too!

    Most companies will not insure you if you manage rental properties, even ones you own yourself.

    The State did not consult the insurance industry to see if this flipper insurance was even available at all. Insurance companies won’t insure a flipper who hires a general contractor and himself does no work because they do not see it as contracting, however L&I requires the insurance. If you don’t swing a hammer, you ain’t a contractor to the insurance company and you aren’t getting insured.

    Although general wisdom is to lie to get the insurance because everybody does it, committing fraud is something most legitimate business people won’t do.

    This is bad for contractors and this is bad for Real Estate Brokers (how many do you know also have rentals?). This law is only going to put legitimate business people out of real estate investing and make sure people who are fraudulent have the advantage. This is going to help the flipper/scam artists who will fly under the radar, because they are just going to have less competition from legitimate businesspeople.

    I encourage everyone who is upset about this law to attend the meeting and let them know how badly they’ve screwed up.

  17. Hi NotGoingToTakeItAnyMore,

    I don’t have answers for you regarding insurance on rental properties since I don’t work with investors seeking rental properties and I do not have the information to reply to that part of your comment.

    However, about being a landlord you said this:

    “To legally fix something on my broken rental here is the process: If something breaks, I let the tenant move out, hire a contractor to fix it and let it sit 12 months before leasing again and hope nothing breaks during the 12 months while it sits vacant….”

    This not the answer that is published on the L & I site which is:

    ” #3: “I am purchasing a residential properly that I am going to remodel or make improvements and then rent it out. Do I need to be a registered contractor? No. ”

    A landlord is able to fix and make improvements without having to register as a contractor, as long as they own their property more than 12 months. Investors of rental properties generaly hold those properties for much longer than 12 months so this change does not effect a landlords ability to fix or improve their property.

    I agree with you that everyone who this law change impacts negitively should be sure to attend the Public Hearings to make sure their voice is heard and possibly help initiate changes.

    Come back and let us know how it goes at the Public Hearing you attend.

  18. This information is great for home owners and RE Investors alike. As investors, we all have a responsibility to educate ourselves on the latest laws, techniques, taxes, opportunities, and especially ethics of real estate investing. This is true whether we are flipping houses, lending money or buying land.
    There are numerous investor groups in the Seattle area that provide an opportunity to learn about this subject. Please visit their sites and attend their meetings. Here are a few key groups to start with, although I acknowledge there are probably others:
    Bellingham: BREIN – http://www.breinonline.org featuring rehab expert Robyn Thompson on Jan 23
    U district: REAPS – http://www.reapsweb.com also featuring Robyn Thompson Jan 24
    Eastside: RE Investors Assoc. of WA – http://www.reiawa.com Jan 7
    Lynnnwood: NW Real Investors – http://www.nwria.com/ featuring John Burley Jan 17
    Mount Vernon/Burlington: SIREN – http://realestate.meetup.com/527 Discussing Title/Escrow issues and Lease Options Jan 10

    Not all RE investors and rehabbers are unscrupulous. While it is unfair to generalize with any segment of the population, most members of these groups and organizations like them are probably bona-fide business people and committed to excellence in this industry. I encourage everyone who is interested to attend, learn, and get involved. My opinion? This law is an effort to regulate where regulation is not beneficial or practical.

  19. The subject of contractors and builders is one so relavent to the current scenario:

    I wanted your opinion on the situation I am in: My hardwood floor (in a new home, 6 months old) seems to have some quality issues. The floor boards are either cracked or have been installed defectively. The builder and his hardwood floor contractor came out an identified the number of defective boards, and the total count came upto 50. However I was able to find 100 more boards bringing the total to 150+. When I communicated this to the builder and the contractor, they scheduled an inspection of the hardwood floor with a representative from the manufacturer. The inspection report however is not available to me to view per builder directive. Builder wants to keep the report between them-contractor and propose a solution by mid next week.

    I want to know the following:

    1) Am I eligible to view the report as owners of the home? I.e. do I have a legal right here?

    2) Should I be worried that the builder/contractor is not being transparent?

    3) What would be an acceptable solution? Replacement of entire floor? Or just defective boards? I am worried because what is to say more boards won’t show up defective in time.

    4) What should be my best course of action – hire a lawyer? Get a hardwood floor inspector? Can you share your advice please?

  20. Could be the builder is proposing a whole new floor in his proposal of next week. I’d wait until you see the proposal before consulting an attorney, as the attorney will likely need to know what remedy the builder is proposing before helping you decide if that proposal is adequate.

  21. Hi JW Brein,

    Thanks for the information and the links!

    Was your investor group aware of the changes in who is required to register as a contractor, before the change occured? How much before or after?

    I am wondering how well informed different parts of real estate were as to the changes, because real estate agents weren’t made aware of this, and how if could effect how we need to help our clients. I brought it up to my broker when I first read Russ’s post, and he was not aware of it.

    Your inverstor group might want to invite Dennis or another member of L & I to find out more or give your feedback as to how effective this new law is.

  22. Thanks Deborah for the update. That’s what I get for not reading RCG for a week or so!
    I’m glad you did the research and seem to understand it well. notgointotakeitanymore (creative) is correct and I think the biggest problem with being a contractor and that is the insurance. You have to qualify for the insurance and have a track record and it takes some time and effort. I’m glad that homeowners don’t need it, but there’s still the rental that’s leased during the first year. Hopefully, in the meetings they will clarify that since buying rental real estate is a great inflation hedge.
    The investor groups I’ve talked to weren’t made aware of the L&I change prior to the change. It will change the nature of the professional fix and flipper. The ones I talked with considered it just a cost of doing business.
    By the way, I didn’t have a problem getting a contractor’s license while having a real estate license. We just formed an Inc, and had no problems. One thing that needs to be brought up at the L&I meetings is whether or not an LLC member can be the contractor. It’s not practical to become a contractor for every project. Many builders create a new LLC every time they develop and use the original construction company to do the building, so I’m anxious to see how that is all ironed out.

    And Deborah, I agree with you. Most of the home improvements I’ve seen that suck are the ones done my the homeowners for their own family. I generally find that converting a garage back to a garage adds more value than than having a home with no garage but more finished square feet.

    Great article.

  23. Hi Eileen,

    Thanks! Rental properties won’t have a problem with doing or having work on them prior to leasing out, since most rental properties are held longer than the 12 month period that the contractors registration law applies too.

    That’s interesting that the investor groups that you have talked to did not know about the changes, certainally real estate agents in general did not know. I think we should have been made aware of the changes since that could affect how we could help and advise clients.

  24. Hi everyone,

    I talked to Dennis at the Department of Labor & Industries Monday afternoon, and he answered a couple of questions:

    ARDELL wanted to know:

    “I’m wondering about people who bought property prior to this change and started or even finished working on it before the change”

    Dennis said that if they have not owned the property for more than 12 months, did not finish before 7-23-07, then they would be need to register as a general contractor ASAP. However, they would also have been out of compliance from 7-23-07 until they were registered, and could be investigated, and fined etc. because work was done after 7-23-07 and they were not registered when the law went into effect. Essentially ignorance of the law does not excuse a person.

    If they finished before 7-23-07 then they would be OK. Remember also that this law change only applies to properties owned for 12 months or less, if the propery has been owned for more than 12 months, then this law change does not apply.

    No good answer for RE agents who may be contacted by someone wanting to sell a property to whom this applies. You should also talk to Dennis to find out more, and possibly talk to an attorney as well, as there is no good answer on how to guide your new client.

    FYI, you cannot get around the law by hiring a general contractor to make improvement to a property to sell if you have not owned it more than 12 months.

    Because this law is still so new there are many questions, and I am not an expert, questions should be directed to Dennis Yonker from L & I, at 360-902-6303 to talk to him about your particular circumstances. FYI, the Department of Labor & Industries number is 800-647-0982.

    You may also want to talk to your attorney about your concerns should this law change have caught you by surprise and you now find yourself out of compliance.

  25. While we have no units for sale in our association, we as separate unitholders haven’t had too much need for individual unit repair services, or finding repair contractors who will do work on units. Our problem is finding qualified contractors who will work on upkeep for our common element areas, like resurfacing the common deck or fixing dry rot on outdoor doors. The contractors who do individual unit work say that they can’t find insurance if they do common element work. Is this a general problem in the condo management industry right now?

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