Wednesday, January 9, 2008

Flippers are required to be licensed and bonded contractors in Washington State

As of July 22, 2007, a flipper is required to be registered and bonded as a general contractor. What is a flipper? A flipper is someone who purchases real property, remodels or rehabilitates the home and turns around and resells it within 12 months or less.

The goal of the new legislation is to protect consumers from becoming victims of a seller who incompetently or unprofessionally remodels or rehabilitates a home and then sells it to an unsuspecting buyer. But, if you own the home for more than 12 months, you are exempt from the contractor registration requirement.

New definition of a Contractor:
Bill 1843, Sec. 1 (1) "Contractor" includes any person, firm, corporation or other entity who, or which in the pursuit of an independent business undertakes to...construct, alter, repair, add to, subtract from, improve, develop, move, wreck or demolish a structure, project, development, or improvement attached to real estate or to any part thereof including the installation of of roofing or siding, performing tree removal services, or cabinet or similar installation... "Contractor" also includes any person...who offer to sell their property without occupying or using the structures, projects, developments, or improvements for more than one year from the date the structure, project, development, or improvement was substantially completed or abandoned.

You can read the entire bill here.

So any investor who purchases a run-down property with the goal to fix it up and then sell it (without residing in it for at least one year), will now have to be a licensed contractor in the state of Washington. In addition, the term "Contractor" also includes a person who, to do similar work on his own property , employs members of more than one trade. So an investor who hires tradesmen to remodel a fixer-upper would also need to have a contractor's license.

Getting a contractor's license in Washington state is not as simple as getting a driver's license, or a Realtor's license. Among other requirements, an applicant must file for a surety bond, issued by an insurer in the sum of $12,000.

Violation and non-compliance with these new rules will be investigated and fined. The director shall appoint compliance inspectors, who may inspect work sites and issue subpoenas. Violation of the statute constitutes a gross misdemeanor and can result in the inability of a seller to enforce, in a civil court room, the terms of a purchase agreement.

The language of the new statute appears to be extreme. The Department of Labor and Industries, the agency tasked with enforcing the Contractor Registration Act, recently produced information letting the public know that it will not pursue enforcement of the legislation under this extreme interpretation.

They will not enforce the law:

"If you have owned your home for more than 12 months, you are exempt from the contractor registration requirement." (Jan/Feb 2008, Volume 8, Issue 1 of Washington Realtor News, Page 23.)

"If you purchase real property with the intention of remodeling or improving the property so that you can rent the property to another or occupy the property as your primary residence, then you are not subject to the new requirements." (Jan/Feb 2008, Volume 8, Issue 1 of Washington Realtor News, Page 23.)

"If you make improvements intending to occupy the residence but are forced to sell within 12 months of buying due to illness, job loss or transfer, divorce or some other unforeseen circumstances, then you are not subject to the new requirements." (Jan/Feb 2008, Volum 8, Issue 1 of Washinton Realtor News, Page 23.)

I've seen some very poor quality remodel work in the past several years done by "flippers", but I think this new law is too extreme and doesn't resolve the issue of improving the remodeling work performed by a flipper, because there are many licensed and bonded contractors out there who do "shabby poor quality work". And, there are many home owners who remodel their own homes and do better quality work than some licensed and bonded contractors.

Only time will tell if this new law will make an improvement in the quality of work performed on homes sold by flippers.

Crystal Wendekier
Accredited Luxury Home Specialist
Keller Williams Realty North Seattle