Flip a House = Pay a Fine, aka Washington SHB 1843

By
Real Estate Agent
https://activerain.com/droplet/4Dhr

Washington State has recently made it more expensive for the Average Joe to do a Flip.

For the purposes of this, 'Flipping a House' happens when you buy a fixer-upper, fix it up, and sell it without living in it.

18.27 is the RCW which regulates the business of Contractors, and requires licensing and fines of non-licensed contractors.

SHB 1843 updates and changes especially those portions of 18.27 pertaining to the definition of Who is a Contractor and Who is Exempt. (Yes, even painting it something you have to be licensed to perform.)

Part of the reasons given for the changes were the rampant problems with non-licensed contractors doing sub-standard work, and no recourse for the people who hired them. Just go to Craigslist and look at all the job offers there, and you can bet a lot of those handy-man type work is supposed to be licensed here in Washington State. (Take a look at the law for the list.)

What does that mean to Buyers and Sellers?

If you  plan to 'flip' a house, you now have to be a licensed and bonded General Contractor.

Specifically it applies to an entity who does "...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."

Actually, not much of this is new. RCW 18.27 has been on the books since the 1960's, and it is updated every few years. If a person was doing any work on that Flip even last year, this law already required them to be licensed as a general contractor.

Up until July 23rd, there was a loophole that allowed the Average Jo a chance to invest and profit from this kind of transaction, without having to act like a contractor. Average Jo could purchase a house, hire a General Contractor to do the work, and then Sell the property for hopefully a good return on their investment.
They did not have to be a contractor unless they did some of the work on the property. (And many will be surprised to see what kind of work is regulated by this RCW.)
It effectively identifies a flipper as a business owner, depending on their Intention. And it requires them to have the same liability coverage as any other builder. 
But this may be the bigger issue- Let's say you bought a house 8 months ago. Let's say you discover some fundamental structural defects in the house. Who would you go after? The person who did the work, or the person who sold you the property?

The Good Thing About This Change:
Unlicensed contracting is a big issue in our state, as well as many other states. It has cost a lot people their life savings. This may help to serve notice to the state's intent in this arena. And I can understand the perspective that someone who looks like a duck is a duck, so to L & I, someone fizing up a property as a business venture is in the business of contracting.

The Bad Thing About This Change:
This change was trumpeted as a consumer protection. Great, everyone can get behind that type of law- let's help the little guy!
Yet... Washington State has no law requiring a contractor to Warranty their work for any period of time. Also, there is no competency testing for a General Contractor. (In fact getting a license is pretty easy- post a Bond, proof of Liability Insurance, and the fee for the license. Take a look here to see the L&I how-to.)

Unfortunately, any noble intent intended by these changes is overshadowed by the appearance that the state sees Home Flippers as Deep Pockets and they want a piece of the Pie. I doubt this will have very little impact as a measure of consumer protection. It will instead have an impact on state coffers.

L&I Info Sheet about Changes to RCW 18.27Download the Info Sheet that L&I has made available for the public.

 Just a point of clarification: The majority of this law is not new. A year ago, it would have been illegal for a flipper to do any of the work on their property. And this law now gives a specific time frame for holding the property. There is a lot of further clarification that needs to be done on the state level, in order to understand how these rather muddy rules will be enforced and interpreted.
Stay Tuned.

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Rainer
5,408
Dwight Wolfe
Emerald Coast Realty, Inc. - Panama City Beach, FL
This post will get lots of replys.  Non-Code work has always been a problem and many states / municipalities are slow to act against it.
Sep 20, 2007 05:01 PM #1
Rainer
16,435
delete me delete me
delete me - Dixon, CA
Wow...i think that's a pretty good attempt to thwart the flippers from ruining a local government's tax base. I think when the taxes are counted this year, the cash flow isn't going to be there to fund the local governments and that's going to be bad...
Sep 20, 2007 05:02 PM #2
Rainmaker
572,858
Sandy Nelson
Riley Jackson Real Estate Inc. - Olympia, WA
your Olympia area Realtor

Sarah,

Thanks for posting on this topic; it needs all the attention it can get.I don't see how the public is now better protected with this bill, nor could I discern a desperate situation in regards to consumers suffering from substandard work on their homes. Most new construction is warrantied and most buyers get a home inspection before they purchase a property. If this measure was not driven by need, then it's probably a money issue. I don't think that the increase in licensing funds from additional contractor's registration will offset the the benefits (financial and communal) of improving real property. And I don't believe it's realistic to think that invester will now flock to get their contractor's license.

 

 

Sep 21, 2007 02:43 AM #3
Rainmaker
46,093
Sarah Nopp
South Sound, WA

 Dwight- Your are right about non-code work being an issue. I just think there is going to be a lot of very upset people thinking about government interference in Property Rights. Because everyone who is selling a property will have to have the license now, even if they own the property and want to fix it up for the sale. I think it will be an interesting response.

Rondel- I have heard some people comparing it to a state requiring sellers of real estate to get a real estate license. I will be interested to see how much they actually raise from this.

Sandy- Yes, this is a strange one as far as the How It Happened stories. They are going to have a Public Comment period AFTER it is in effect. Interesting sort of process, isn't it? I will be curious to see what kind of impact it will actually have. Perhaps not a lot, since there is such a small amount of Flipping activity in our area anyway, at least in comparison to other areas.

Sep 23, 2007 06:47 PM #4
Rainer
38,985
Ray Perry
CENTURY 21 The Neil Company Real Estate - Roseburg, OR
Realtor, CRS, GRI, e-PRO

Sarah:  I don't see how this new law is a benefit to the people of Washington.  They need to establish  better licensing standards.  If contractors were used to do the work, if it were shoddy I would go after the contractor not the owner. 

I know it doesn't work that way but If I were sued for flipping a house that had some bad work done, I would go after the person who did the work.  If they were licensed they would be in danger of loosing their license if they didn't make it right.

Sep 23, 2007 07:14 PM #5
Rainer
48,039
Jolynne Photography, Creative Wedding Photography, Family Portraits, Bar Mitzvahs
Jolynne Photography - Hemet, CA
Bat Mitzvahs, Senior Pictures, Event Photography

I have to agree with Ray.  A person should be able to buy and sell real estate for profit without having a contractor licens, and be able to hold contractors accountable for shoddy work.  Great information, Sarah.

Sep 25, 2007 08:50 AM #6
Ambassador
891,817
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Wow.  If I ever saw a post that outlined how local government was out of control, this is it.  For the state to say that I can't buy a property, and then have work done that meets code, and then sell the house at a profit (or loss) without being a contractor, is a SERIOUS breach of property rights. 

I can work on my own house, as long as the work meets code, without having a professional license in any discipline.  I can do my own plumbing, electrical or HVAC.  However, I can't run around charging others for it.  

If there is a big problem with substandard work, it sounds like the state is looking at the wrong issue.  Perhaps they need to look to the permitting process if there aren't permits and inspections, home inspectors if the non-code work isn't being caught, and tradespeople if the work is being done in a sub-standard manner (of course, they should also fine tradespeople if they are doing un-inspected work on non-permitted jobs). 

Sep 25, 2007 09:21 AM #7
Rainmaker
46,093
Sarah Nopp
South Sound, WA

Thank you all for commenting!

I have heard some people comparing this law with the idea that a Seller would have to be a licensed agent to sell real estate. Interesting reactions form all corners. I will see how my clients respond to it.

One of the most surprising things to most people is that most of this law isn't New!
A seller wasn't legally able to do the work on the property for sale before this anyway. A contractor had to do the work if the intent was Sell.

So the change is that now a seller has to have the license, no matter who is doing the work.

Sep 25, 2007 04:29 PM #8
Rainer
292,612
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate

Great information!  I'm with those that expressed concern for the private person who simply wants to buy a fixer, fix it up and sell it.  I don't see why one would have to have a license to to this as along as permits are pulled etc.  I can see the intent of the law but it seems to take away the role of regular joes wanting to fix up a property.

Oct 03, 2007 01:34 AM #9
Ambassador
2,140,365
Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
What a great idea! I wish more states would adopt this policy, I've had way too many homes that were advertised as remodeled and the inspector comes in and basically says "RUN! Before it falls down on us"
Oct 19, 2007 07:24 PM #10
Rainer
10,292
Devon Thurtle
Heffernan Law Firm - Kirkland, WA

Sarah: This is a great post, thank you.  I also wanted to thank you for all of your great contributions to the Washington Real Estate and Property Law group, which is where I found this!

 

To add a bit to your warranty comment, it might be worth nothing there is one warranty a builder may give to a home's first buyer: the warranty of habitability.  This is an implied-in-law warranty, meaning that it exists even if it does not appear in the contract.  It is not the kind of warranty protection that I believe a lot of consumers are looking for or might even expect, as all it requires is that the home is, in fact, "habitable."  Additionally, the Condominium Act does require a number of warranties, although those warranties can be specifically excluded.  However, as your post and the comments demonstrate, this is not necessarily the kind of protection  that most consumers might expect.

 

Thanks for the great post!

Oct 23, 2008 07:25 AM #11
Anonymous
Nicole Goodman

How is this monitored? How does L&I know a flip has occurred?

Jul 15, 2014 04:27 AM #12
Rainer
1,050
Jennifer Haddock

I purchased my home in April 2009, this was my first home as a single mother.  I learned later that not only was this law passed but my house in fact was illegally flipped by a non licensed/bonded person acting as contractor which in fact had no idea what he was doing.  The city of Clarkston allowed this as a one time courtsey even though it was illegal and then the building inspectors didnt do their job and make sure this was done correctly My house is now falling apart and I have to file a claim with the city but I feel my home is a total loss How could of this happened? Some one please help and let me know how to get this to a higher level with the state!

Jul 16, 2014 05:01 AM #13
Rainer
1,050
Jennifer Haddock

Nicole- The building inspectors should be doing their job and making sure things are done legally!

Jul 16, 2014 05:02 AM #14
Anonymous
MIchael

No Inspector should sign off a project built by someone that is not licensed. This would make a non licensed persons work worthless and discourage it from being done. This illegal underground industry can be stopped if this was applied. Non - licensed builders are criminals who steal jobs from licensed , bonded and insured legal builders. It needs to stop.

Mar 25, 2015 10:03 AM #15
Rainer
38,985
Ray Perry
CENTURY 21 The Neil Company Real Estate - Roseburg, OR
Realtor, CRS, GRI, e-PRO

Michael, you should only eat at restaurants instead of fixing your own meals.  The buyer should invest in a building inspection to make sure the home is well built.  Just an update on this.  My daughters father in law wants to sell her and his son his house in Washington for less than market value to help them out.  They want to fix it up to sell but can't because they would not have lived it.  They now may have to sell a house that may not qualify for a loan because it needs some basic repairs and upgrading or they have to fix it up first before they buy it or be fined.  Of course they had planned to hire contractors to do the work but this law only lets contractors buy, fix up and sell homes.  There are a few things that a non contractor can do well on a home he or she owns but the work still has to be up to code. What happened to the inspectors who are supposed make sure everything is done right?  This is government getting way too involved in personal property rights.  Of course, that is the way of Washington State these days.

Sep 09, 2016 10:09 AM #16
Anonymous
Tim

This law is really a joke, so many people are saying that it is great because it protects the buyer. Well just so you know any moron can go get a contractors license, just because they have a license does not mean they know what they are doing.

Mar 15, 2017 05:45 PM #17
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