Is it Stellar Service or Extraordinary Risk?
A broker recently explained a problem that she faces often. Her explanation went like this:
When I represent a seller, and help negotiate seller’s response to buyer’s request for repairs, I gather bids so seller can choose whether to move forward with buyer’s request. If seller agrees to repairs, I coordinate those repairs, meet the contractor at the home (or provide them with keys at the office), follow up on the repair process and confirm completion, report back to the seller, and deliver the invoice to seller, buyer’s agent and escrow. I am concerned I should not be doing these things because of the Contractor Licensing Law. I am also torn, because doing these things seems to be expected.
Take this example. I am the listing broker. Buyer’s agent called several contractors for bids and information regarding work requests and these are the contractors buyer wants seller to hire. If seller agrees, then I will be responsible for coordinating all of this work and some other repairs where buyer’s agent did not provide suggested contractors. Sellers are in California, so it does not seem reasonable to require them to coordinate contractor work. I don’t mind doing these things, however, I am concerned that I may be overstepping my bounds, and could be liable at some point in the future.
Broker’s concern is well-founded. Broker is likely acting as an unlicensed, uninsured general contractor. The Washington State law that controls this issue is the Contractor Registration Act (RCW 18.27) which, admittedly, is difficult to understand and apply. Understanding why broker’s actions require a general contractor’s license starts with knowledge of the statutory language. Redacted down to the information that matters most to this issue, “Contractor” is defined in statute as follows:
“Contractor” includes any person...who...undertakes to...or submits a bid to construct...repair...improve...any building...including the installation of carpeting or other floor covering, ...the installation or repair of roofing or siding, performing tree removal services, or cabinet or similar installation....
Redacted down to the information that matters most to this issue, “General Contractor” is defined in statute as follows:
“General contractor” means a contractor whose business operations require the use of more than one building trade...upon a single...project...A general contractor also includes one who superintends, or consults on, in whole or in part, work falling within the definition of a contractor.
Said differently, a “contractor” is a person who submits a bid to repair or improve any building. A “general contractor” is a person who superintends or consults on the work of contractors. Using the statutory language as the backdrop, it is easy to understand broker’s concern. Broker provides the following services for the parties:
Broker gathers bids for seller to use in evaluating buyer’s requests;
Broker coordinates the repairs agreed by seller;
Broker meets the contractor at the home (or provides contractor with keys);
Broker follows up on the repair process;
Broker confirms completion;
Broker reports back to seller;
Broker delivers the invoice to seller, buyer’s agent and escrow.
In broker’s example, all of this work is performed for sellers who are out of state and because of their absence, fully dependent on broker to insure satisfactory completion of agreed repairs.
Dispensing with the easy question first, broker is not performing the work of a “contractor” because broker is not personally submitting bids to perform work.
But, it appears that broker is acting as a “General Contractor”. Broker “superintends” and/or “consults on” the work of contractors. As the law presents this issue, broker either is or is not acting as a general contractor. Broker either is or is not “superintending” and/or “consulting”. There is no slippery slope. The law does not allow an unlicensed person to “superintend” or “consult” just a little bit before becoming a general contractor. If a person “superintends” or “consults on” the work of contractors, that person is acting as a “General Contractor” and must be licensed and insured as a “General Contractor”.
The Contractor Registration Act does not define “superintend” or “consult” so any reviewing court will give those words their normal meaning. The Merriam Webster Dictionary defines “superintend” as: “to have or exercise the charge and oversight of” and defines “consult” as: “to consult an individual … to deliberate together”.
By gathering bids from contractors, for seller’s review, broker is not superintending or consulting. But by coordinating repairs, following up on the repair process, confirming completion of the work and reporting back to the seller, it seems undeniable that broker is “exercising charge and oversight of” the repair work and broker is “deliberating together” with contractors to fulfill seller’s contractual obligations. Say, for example, that broker concludes a contractor’s work is not complete and calls the contractor back out to the site. Broker is “exercising oversight” over the contractor’s work.
The ultimate question with which brokers and their managing brokers will have to wrestle, and it is emphasized in the example where seller is out of state and broker is singularly responsible for scheduling, instructing, managing and approving the work of contractors, is this: if a seller expects this service from me and I have concluded that I am in violation of Washington law and am likely acting outside the scope of my errors and omissions insurance, how do I balance the competing needs of giving the seller the service seller wants and needs with my desire to be legally compliant and properly insured?
The most conservative answer is that broker either gets a general contractor’s license with all the required bonding and insurance or tells seller that seller must hire a general contractor to perform the services that broker is not licensed to provide. The most reckless answer is that broker carries on with the status quo and assumes that since no harm has come yet, no harm will come in the future.
Where, on this spectrum of potential responses, a broker will actually fall is entirely up to the broker and the broker’s managing broker. The potential consequences of providing unlicensed general contractor services include disciplinary action from the Department of Labor and Industries, which would likely result in disciplinary action from the Department of Licensing as well. Additionally, if something goes wrong in broker’s efforts to assist the parties by providing unlicensed general contractor services, broker and her firm may be sued by a consumer for damages arising from broker’s unlicensed activity. If a broker is sued based on a claim that broker provided unlicensed general contractor services and those unlicensed services resulted in harm to some member of the public, it is most likely that broker’s E&O carrier will refuse coverage claiming that broker’s violation of the Contractor Registration Act is not covered by broker’s Real Estate errors and omissions insurance.
While a broker’s desire to provide “full service” to a seller is understandable and in many ways, commendable, in this case, it is extraordinarily risky. First, consider the number of transactions where a buyer is unhappy with the repairs made by a seller. This outcome occurs frequently. If the subject of the repairs is significant enough to warrant legal action by the buyer, then any claim that seller is forced to defend will likely be deflected by seller’s claim against the broker who “superintended” the repairs. Very quickly, the claim is going to be directed primarily at broker and her firm and it is unlikely that insurance will provide a defense.
Brokers and firms must understand that they are not obligated to provide “General Contractor” services to clients. Washington Law is clear. Brokers are not obligated to provide any services to a consumer that are not mandated by the Agency or Licensing Law. However, if a broker undertakes additional services to a consumer, either by contract or otherwise, broker will be held to the standard of care of a competent provider of those services. If, in this case, broker undertakes to provide general contracting services to the parties, broker’s conduct will be measured against the service that would be expected of a licensed “General Contractor” including insurance and bonding that a General Contractor is required to carry.
Firms should establish clear policies speaking to this issue and prohibiting brokers from providing unlicensed “General Contractor” services. Often times, the best way for a broker to refuse what seems to a consumer like an easy and logical request, is to explain that office policy (and Washington law) prohibit broker from providing the service.
The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.