Washington state anti-flipping law (SHB 1843)

96 Replies

Question for Washington state flippers. I'm a beginning investor in the Seattle area. Just heard about Washington state's anti flipping law. It seems that only licensed contractors are legally allowed in Washington state to sell a house within 12 months of completing more than $500 worth of improvements.  

Is that law still in effect? Under what circumstances is it enforced? Should I look into becoming a licensed contractor so that I can do my own flip deals?

@Howard Edson  

Yes, have to have the bond and insurance to get contractors license. Cost isn't that great, should be less than $1000. Shop around some insurance brokers for quotes. I know lots of guys skate by without getting licensed, but first time offense is $1000 fine and could be a big headache if you were operating without permits too. Easier to just get it, cost of doing business.

@Sean T.  

Possibly. Practical issue of how the law works and who exactly needs to be licensed comes up often (personal, LLC?, multi-member LLC, sub-LLC...). State want the owner of the property being flipped to be licensed contractor. I get hit with it often because my name is spelled wrong at L&I, so when they check they don't find my contractors license.

I haven't heard of anyone being hit with this in King County, but I know it has been heavily enforced in Kitsap County for a while. It may be just a matter of time. I'm also interested in how much the license, bond, and insurance will cost, and where can I get it done without much headaches. 

Originally posted by @Howard Edson :

It seems that only licensed contractors are legally allowed in Washington state to sell a house within 12 months of completing more than $500 worth of improvements.  

Does that mean that a homeowner wouldn't be allowed to refinish their hardwood floors before putting their house on the market to sell?

Originally posted by @J Scott:

Does that mean that a homeowner wouldn't be allowed to refinish their hardwood floors before putting their house on the market to sell?

 I think the 12 months apply from acquisition to sale. So as long as they've lived in the home for at least 12 months, that should be fine. 

@J Scott @Nghi Le  

or maybe its a tree-hugger thing?  it is washington state - maybe they don't want you re-flooring to prep for sale, those dirty old rugs were good enough for you.  LOVE YOUR MOTHER! 

Paint and carpet cleaning(with just steam of course, not chemicals!)

Originally posted by @Nghi Le :
Originally posted by @J Scott:

Does that mean that a homeowner wouldn't be allowed to refinish their hardwood floors before putting their house on the market to sell?

 I think the 12 months apply from acquisition to sale. So as long as they've lived in the home for at least 12 months, that should be fine. 

Does the owner (on title) need to be a licensed contractor to get around the restriction? Or does the owner just need to have the work completed by licensed contractors?

What happens if the owner of record is a business entity and one of the owners/shareholders/members of the business holds a contractors license?

I'm not clear on how the contractors license comes into play...

@J Scott 

I definitely agree with you that it's a stupid law. I think the state saw how much money investors are making and wanted a bigger piece of the pie. 

But hiring a GC isn't enough. Has to be one on title. I'm not sure if being a part of the LLC works...

@J Scott 

its intent... If your intention is to buy and sell for profit then you need a license end of story. If your a home owner doing fix up to sell your exempt... Yes you could have the LLC own it as long as one of the managing members is licensed ( this is how I operate exactly)

In Oregon its a 5K fine per event... And you need either a Developers license or a GC.. and the bond and GL insurance in Oregon it will cost you about 4k to get set up legally.. But then you can be in the business.

Now this law is violated everyday and twice on Tuesday and Sunday.. the real issue also comes if you had a construction defect claim and your not properly licensed. And or  a competitor turns you in.. You will have the contractors board on your job site same day they will red tag you and stop you on the spot.  Same as if you have unlicensed trades doing work.. they spot check all the time and stop projects when they go to check licenses.   Northwest is a stickler on this stuff if your caught... Be a big enough violator and they can preclude you from ever doing business in the state.

@Nghi Le  

has nothing to do with the state wanting a bigger piece of the Pie.. the laws are there to protect sub contractors with comp claims and lien rights.

An LLC can own the asset as long as one of the managing members is a developer ( Oregon rule) or GC then all is good...

Investor that are doing this one the side with no licenses are doing it illegally, but like I said it happens every day all the time... But does not make it right ,, and those of us that follow the laws and get licensed and pay our insurance and Bonds while the flipper next door skates the rules well that's not really well received in our market.. So you can imagine how many get turned in my GC and Developers if they get a wild hare.

And its not a STUPID rule its a great rule.. it protects the industry gives it conformity and protects the buyers of the properties they know that their homes have been rehabbed our built by licensed companies not some Johnny lunch bucket white collar investor who wants to be a flipper and not follow the rules....    :) 

I'll study the cost of getting licensed, bonded and getting the $250K in insurance necessary to comply with the Washington L&I rules for registering as a contractor. But honestly my initial reaction is maybe I should focus on rentals instead of flips, or perhaps a hybrid (rent my flips for a year between buying and selling). Besides avoiding triggering this law, my profit would be taxed as a long-term capital gain instead of ordinary income. 

That's a good idea since you`re not a General .........as for Jay`s comments, why should we GIVE the bleesing of gov`t to assuring a well done re-hab instead of the BUYER doing their due diligence ?  I think Gov`t is intrusive enough !

Originally posted by @Jay Hinrichs:

And its not a STUPID rule its a great rule.. it protects the industry gives it conformity and protects the buyers of the properties they know that their homes have been rehabbed our built by licensed companies not some Johnny lunch bucket white collar investor who wants to be a flipper and not follow the rules....    :) 

If the goal of this law is to protect the consumer, how exactly is the consumer more protected by the owner being a licensed GC versus the owner hiring a licensed GC? 

Either way, the buyer is getting a property that was rehabbed by a licensed GC, which sounds like the goal...

What am I missing?

Gee, I don`t know ? How about a " License" ( and a fee) making someone with ABSOLUTELY NO EXPERIENCE playing as if they actually know construction ? I`ve been a General Contractor for 34 yrs...........and believe me there are enough "Johnny Lunch Box" Licensed contractors out there that don`t know squat and do horrific work.

Keep drinkin`

The goal of all licensing is to protect the monopoly and enrich the government.  They can pay lip service to consumer protection to make the general public accept the higher prices.  Unfortunately this means anyone wanting into the monopoly has to pay their dues to the man and his coconspirators. 

Well I did not think this thread would go into conspirator theories.

@J Scott 

  I kind of look at it like one needs a RE license to resell an investment home or any home in Wisconsin.. I learned that one on BP and would have thought that could not be legal until I was proved otherwise.

But at the end of the day that is what the law is here in Wa and Or... follow it or not at your own risk.... OCB is pretty over the top enforcing the laws of contracting here in this state.

And when I started flipping in Oregon in 2001  I had no clue either.. I probably did 50 flips before I learned I was doing them wrong.. I had 2 full time GC's that were my employees they pulled permits etc.. but because they were not owners I was the owner I was still in violation... So I got my developers license and there ya go.

@Howard Edson  

  if the cost of licensing is keeping you from flipping then your probably not intending to do much flipping or make very much money at it.. So your right why bother and your strategy of keeping them a year then selling for cap gain is a good one expecially if your just doing a few a year.

@Jay Hinrichs  @J Scott 

I'm still of the opinion that this doesn't really provide any additional protection to the consumers, especially due to how easy (or so I've heard) it is to get the license, bond, and insurance.  The only hard part is the cost.  There doesn't seem to be any real qualification/education involved in being a licensed GC, as @Bryan Chambers  has mentioned.  If they really cared about protecting home buyers, they should make it harder or require to pass a test, like getting your RE license.

@Troy Fisher  

RCW 18.27

@Nghi Le  

don't know specifically about Washington but ORegon you do have to pass a test and take continuing ed just like you do for RE license and Mortgage origination license.

Its the same thing with wholesaling properties that are talked or debated ad nauseaum  on this site  do you need a RE license or can you wholesale without... some states say no and enforce it some states say no and look the other way... But that does not keep the army of wholesalers from wholesaling and selling RE without a license.. I know the argument for flipping contracts etc.. but some just blatantly act as RE agents with no license.

And again it has to do with comp claims and lien rights as well...  non licensed sub or contractor has no lien rights.

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