The High Price To The Low Bid – Why You Should Never Hire An Unlicensed Contractor To Work On Your Property (When A License Is Required)
It Never Makes Sense To Hire An Unlicensed Contractor – The Risks Far Outweigh Any Rewards And It’s Against The Law
In California, like many states, contracting for work where the labor and materials are greater than $500 requires a contractor’s license – there are no exceptions. Month after month I hear stories of people, including other real estate agents, who hire unlicensed contractors (when the work unambiguously requires a contractor’s license) in an effort to save money. In reality when they do so they are breaking the law, and exposing themselves and their brokers, and/or their clients, to unnecessary risk. In addition to all of the potential workmanship issues associated with unlicensed contractors, the red-flag that is most prevalent and potentially damaging is the insurance issue. Unlicensed contractors are NOT insured. Unlicensed contractor’s work is NOT bonded. Unlicensed contractor’s employees are NOT covered by worker’s compensation insurance. Unlicensed contractor’s work is NOT guaranteed.
In fact, an unlicensed contractor’s employee is the statutory employee of the homeowner – the parade of horribles that can exist would require the homeowner to pay for any and all employee injuries incurred on the property, including wrongful death. In my mind this is clearly the “High Price to the Low Bid” and should be avoided at all costs. If a real estate agent or broker ever recommends using an unlicensed individual on your property you should seek the services of another real estate agent or broker with expediency.
CSLB Sting Nets 75 Unlicensed Individuals Posing As Licensed Contractors
The California Contractor’s State Licensing Board (CSLB) recently conducted a sting operation which netted a total of 75 arrests of individuals attempting to perform work without a contractor’s license. None of the 75 were licensed and several of them were identified as registered sex offenders, convicted felons, and many had open bench warrants outstanding. Is this information that would be important to you before you hire an individual to perform work on your home? If your real estate agent or broker is recommending a contractor it is vital and paramount to have the contractor provide their license number, insurance information (both commercial general liability and worker’s compensation), bond information, local references, a copy of their home-improvement contract, sub-contracts, and change order forms. If an individual can’t provide these minimum requirements you should immediately look for another person to perform the work – there are plenty of licensed, competent contractors doing work in the state.
Benefits Of Hiring Licensed Individuals
When you hire a licensed contractor there is a distinct path for dispute resolution. The CSLB requires mandatory arbitration for disputes under $12,500 which would be covered by a contractor’s license bond. A licensed contractor must participate in the mandatory arbitration to resolve the dispute. Additionally, with disputes up to $50,000 the licensed contractor can opt for voluntary mediation – which is usually less expensive and quicker than litigation if the case resolves. Finally, multiple complaints against a licensee that are validated can result in a suspension or restriction on the license.
Importantly, licensed contractors are more likely to have commercial general liability insurance, worker compensation insurance, and insurance on their vehicles. You must ask for this information to be provided to you as soon as reasonably possible. Any contractor who can’t provide this information is suspect because competent, qualified, licensed contractors have these protections in place for themselves and their clients.
Short Cuts Are Never Warranted
In California if someone is contracting for work where a contractor’s license is required they must have a contractor’s license – that is the law. There are no reasons that a real estate professional, agent, or broker should ever recommend or refer an unlicensed individual when a license is required. Doing so is monumentally below the standard of care in the real estate profession, exposes the homeowner to undue unlimited risk, and creates a disclosure issue for the homeowner when they go to sell their home. Remember, there is the “High Price to the Low Bid” which only creates situations which were completely avoidable. If a homeowner is posed with an agent, broker or other professional recommending an unlicensed individual to perform work where a license is required they should walk away and hire a competent licensed real estate professional who has the client’s interests above all else.