California Flippers: What do you think of AB968 (starting 7/1/2024)?

Question

You will have to get permits and disclose your contractor ...

AB 968 requires the seller of a singlefamily residential property to disclose work done on the property, if the seller obtained title of the property within the previous 18 months. Specifically, the law requires the seller to provide information regarding all room additions, structural modifications, alterations, or repairs made to the property since obtaining title if they were performed by a contractor. Only contracts totaling $500 or more are required to be reported. The name of each contractor with whom the seller entered into a contract for the work and copies of permits must also be disclosed. This disclosure requirement applies on or after July 1, 2024.

David C. · Answer

Good points @Anthony

I think it will have a significant effect, for the better.

As a private lender for years, I've seen many flippers use unlicensed workers and fail to pull permits.  As a matter of fact, I had a discussion with a flipper a few weeks ago that brought this new reg to my attention, he was considering getting out of the business realizing that now he would have to comply, and that it would substantially hurt his bottom line.

For me, as a conservative leader, I see it as a positive.  Rarely do I lend rehab money, 1st position purchase money only.  Why, because of the extra work on my part to administer the hold backs, draws, inspections, etc.

Now I can offer rehab money if they are willing to accept a third-party funds control company. I could always do this but now there is an additional incentive … compliance with AB-968.  This would reduce the chances of overrunning their budget, verify work before the next draw and verify permits.  Good for me, the flipper and the buyer.  That’s my thought, we’ll see how it works out.

Karen Margrave · Answer

It's great for contractors. There's too many people flying under the radar and having work done by people professing to be contractors, that aren't. Though it may seem to save them money, many homeowners end up with shoddy work being done that isn't to code, and end up paying a fortune to get it corrected.  Homeowners are going to be required now to actually verify licenses, which isn't hard at all to do.

Sellers need to understand, Buyers are requiring home and pest inspections. They, and their agents, oftentimes go online to check and see what permits were pulled, and work done. If a seller says a home has a new roof, deck, addition, etc. and want to get credit for the value add, but there's no permit to back up the claim, forget it. Also, as licensed agents, if a home has work that wasn't permitted, we are required to tell the buyers, that should they purchase the home without permits, and the City or County finds out about it, they can make them remove any additions, etc. If it was done to code and not permitted, they also could just say to submit plans, pay fees, and have inspections. However; there's no guarantee that's the option that they will do.

Bill J Fay · Answer

Very informative topic. Overall, I believe this is a positive, especially with home values in CA. Many flipped homes are bought by 1st time homebuyers that have no experience with construction. A paper trail allowing them to see what work was done while also seeing who did the work will deliver more polished products and accountability from all parties. My hope is that building departments will act quicker in issuing permits, as this change will increase their workload.

Carlos Ptriawan · Answer

one year is to avoid dealer tax regulation, add another 6 months, yeah so total 18 months anyway , this doesn't change much expect folks would do less agressive buying.

also for me in this market it doesn't make sense to immediately sell but better wait for 14 months at least.

Anthony Sumbry · Answer

Hey David,

To be honest, this bill just hit my radar on Thursday. As an agent and real estate investor, I’m surprised that more people haven’t been talking about this. This will definitely change the game for flippers who aren’t currently using licensed contractors to do the work. Although AB-968 doesn’t specifically mention “licensed” contractors, the state of California already stipulates that “anyone who contracts to perform work that is valued at $500 or more in combined labor and materials costs must hold a current, valid license from CSLB” (source: CSLB).

With AB-968, if work is performed by an (un)licensed contractor in an amount that exceeds $500, disclosing that entity’s or individual’s name and contact information becomes a legal requirement. Assuming that the contractor does not hold a license, the seller would be effectively unveiling potentially illegal activity to the buyer, along with names and contact information. I can see lawyers having a field day with this. As a matter of fact, if you research the term “AB-968” in Google, you’ll see a sea of blog posts by law firms. I don’t think this is a coincidence.

As agents and investors, we really need to take note of this new change. I’ll also be advising all of my investor clients accordingly. I spent the weekend researching and posting a blog about it myself: Fixing Up A House for Sale in CA Requires New Disclosures.

I’m curious about your thoughts. Am I overanalyzing things, or do you also see what I’m seeing?

Alan F. · Answer

Holding period is 18 months, as I recall.

Carlos Ptriawan · Answer

lol the best to sell is after one year anyway …. This regulation only ask about another 6 months

Jacob Sherman · Answer

I live in PA and there are prety strict sellers disclosure laws . protected for upto 2 years

California Flippers: What do you think of AB968 (starting 7/1/2024)?

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