Source: https://journal.firsttuesday.us/brokerage-reminder-agents-and-property-improvements-when-repairs-require-a-contractors-license/33175/
Timestamp: 2020-01-21 21:02:07
Document Index: 441523885

Matched Legal Cases: ['§7026', '§7151', '§7056', '§7057', '§7058', '§7048', '§7044', '§7042', '§7043', '§7026', '§7048']

Brokerage Reminder: Agents and property improvements – when repairs require a contractors license | first tuesday Journal
Brokerage Reminder: Agents and property improvements – when repairs require a contractors license
Posted by ft Editorial Staff | Feb 25, 2014 | Brokerage Reminder, Latest Articles, Real Estate News | 0
It’s common for an agent to coordinate repairs on behalf of the owner when listing property for sale or lease. Agents who order or oversee maintenance or repair projects costing $500 or more are considered consultants, and subject to contractor licensing requirements issued by the California Department of Consumer Affairs Contractors State Licensing Board (CSLB).
In 2013, contractor licensing requirements were expanded to require licensure for consultants to a home improvement contract. A consultant now includes any person who:
provides or oversees a bid for a construction project; or
arranges, schedules and oversees contractors and subcontractors in the completion of a construction project. [Business & Professions Code §7026.1(a)]
Included specifically are projects calling for repairing, remodeling, altering or modernizing residential property. [Bus & P C §7151]
Prior to 2013, a consultant was a person who, in a maintenance or repair project, did not undertake to “construct” anything. Thus, the person merely facilitating the cleanup, repair or maintenance of a property with contractors on behalf of the owner did not need to hold a contractors license. [The Fifth Day, LLC v. Bolotin (2009) 172 CA4th 939]
Today, the contractors license law requires real estate licensees and property managers who act as consultants to have a contractors license if the cost of the work involved totals $500 or more.
The Contractors License
The CSLB issues three types of contractors licenses:
a general engineering license, for contractors whose principal business requires specialized engineering knowledge and skill, such as irrigation and drainage, flood control, streets and roads, bridges, etc. [Bus & P C §7056];
general building license, for contractors whose principal business is the construction of any structure designed for occupation by people, animals or personal property [Bus & P C §7057]; or
specialty license, for contractors whose principal business is a specialized trade or craft, such as servicing fire extinguisher systems, painting, roofing, laying carpet or linoleum, or preparing or removing roadway construction zones. [Bus & P C §7058]
Individuals are not required to be licensed under the contractors license law if:
the work performed costs less than $500, including labor and materials [Bus & P C §7048];
the work is performed by the owner of the property [Bus & P C §7044];
the work is performed by a public utility [Bus & P C §7042];
the work involves petroleum and gas operations [Bus & P C §7043]; or
the work performed is for agricultural purposes.
Further, a common interest development (CID) manager is not required to have a contractors license when performing management services. [Bus & P C §7026.1(b)]
Editor’s note – The exemption threshold was increased from $300 to $500 in 1999, but hasn’t budged a dime since. The state legislature needs to again adjust the threshold for inflation, and consistently do so each year to prevent absurd results (like the painting of an apartment unit requiring the painter to have a contractors license). Using the Consumer Price Index (CPI) to adjust, $500 in 1999’s dollars yields approximately $700 in today’s dollars.
The agent contracts for repairs, improvements or maintenance
Repairs are made to add value to a property listed for sale or lease, called fixer-upper expenses. These fixer-upper expenses are deductible by the owner from income or profits.
When operating a residential or nonresidential rental property, routine maintenance is part of day-to-day property management. Routine maintenance prevents obsolescence from decreasing a property’s desirability as a rental, and thus, its value and the total rents it commands.
Further, the task of maintenance is an integral part of property management. When management tasks are delegated by a property owner to another person, that person is required to hold a broker license to accept the employment.
Consider an agent who lists a property for sale. As part of their presentation, the agent suggests the seller make specific repairs needed prior to marketing the property at the listed price so the agent can market the property as “turnkey” – buy and move in, now.
The agent explains that turnkey properties command a higher price and generally sell quicker. In addition, property deficiencies corrected prior to the owner completing the transfer disclosure statement (TDS) need not be brought to prospective buyer’s attention as part of negotiations as the deficiencies have already been repaired and no longer exist. [See first tuesday Form 304]
However, when an agent suggests repairs be made to a property, owners often turn to the agent to handle contracting the recommended repairs.
An effective agent assists their client, be it the owner, seller, landlord or buyer, by contracting for repairs and maintenance needed to:
prepare a property for sale or lease;
comply with requests for repair demanded by the buyer and approved by the owner;
comply with closing conditions which include minor repairs when representing the buyer; or
complement their property management services.
For repairs costing less than $500, the agent can contract with either:
licensed contractors; or
unlicensed individuals such as handymen.
However, when costs for all the proposed repairs are $500 or more, an agent who does not have a contractors license is limited in involvement to recommending a competent licensed contractor. All the negotiations, contracting and oversight are the responsibility of the owner directly. [Bus & P C §7048]
The same rules apply to a property manager overseeing the ongoing repairs and maintenance of property they are managing. A broker, retained as property manager, is allowed to order out maintenance, repairs and replacements to be performed by third parties when the total cost is less than $500 per project.
In addition, a property management agreement does not relieve an agent or broker from the contractors licensing requirements if they intend to solicit bids or otherwise facilitate or undertake any part of the work for repair and maintenance projects costing $500 or more.
Accordingly, an agent who provides property management services and is also a licensed contractor can order out work as authorized by the owner of the property regardless of the cost. [See first tuesday Form 108]
In either situation, a professional property manager always has a predetermined limit for repairs set by the property management agreement entered into with the owner. Any repairs which exceed the limit require the owner’s further authorization.
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