New Change To Contractor Registration For Washington Real Estate Investors/Flippers
In 2008, many real estate investors and attorneys met with the Washington State Department of Labor & Industries and furnished public testimony opposing the requirement for “flippers” to become licensed and bonded general contractors.
In spite of significant backlash, RCW 18.27 was amended to include flippers who intend to rehab and resell residential properties within twelve months. As a result, flippers were forced to become general contractors themselves regardless of whether a general contractor was hired for the project. The law remains in effect today.
Effective July 24, 2015, Washington State House Bill 1749which eliminates the requirement for a licensed, bonded general contractor – typically the investor themselves – to be on title. The new Act provides that a property owner who improves and offers to sell property without occupying it for more than one year is not required to register as a contractor if the owner contracts with a general contractor.
The Contractor Registration Act requires general and specialty contractors to register with the Department of Labor and Industries (Department). Applicants must obtain a bond and insurance to register.
“Contractor” is defined as including any entity who, in the pursuit of an independent business, undertakes to or submits a bid to construct, improve, develop or take specified other actions with respect to a building, development, or other structure listed in statute.
Installation of carpeting or other floor covering is specifically included. Also included in the definition is an owner who offers to sell property without occupying or using the structure, project, development, or improvement for more than one year after it was substantially completed or abandoned.
The exemptions from registration include an owner who contracts with a registered contractor. However, this exemption does not apply to a person who performs the activities of a contractor for the purpose of leasing or selling improved property he or she has owned for less than 12 months.
This new Act will allow people to buy property and do basic improvements without going through the difficult process of registering as a contractor and obtaining a bond. According to the Department, buying a home as an investor and hiring a general contractor to do the work is breaking the law if the house goes on the market less than one year after acquisition. The fine is $1,000 and there can be attorney’s fees.
The purpose of the original law was to level the playing field between registered and unregistered contractors and to protect consumers from unregistered contractors. The new Act corrects an unintended consequence in the existing law. The intent was to crack down on flippers. The new Act will benefit property owners and consumers. The work will still be done by reputable contractors so consumers get a good product. It should be enough if you hire a general contractor.
The new Act will apply to residential and commercial and to new and existing structures. Persons doing only flooring and painting will not be required to register.