Form-of-the-Week: Work Authorization – Form 108
In the course of listing property for sale or lease, or acting as a property manager, it is common for an agent to coordinate repairs on behalf of the owner. When a property is listed, repairs are made to add value to the property, treated by the owner as fixer-upper expenses. These fixer-upper expenses are deductible by the owner from income or profits.
When operating a residential or nonresidential rental property, routine maintenance is part of day-to-day property management. Routine maintenance prevents obsolescence from decreasing a property’s desirability as a rental, and thus, its value and the total rents it commands.
Further, the task of maintenance is an integral part of property management. When management tasks are delegated by a property owner to another person, that person is required to hold a broker license to accept the employment.
When listing a property for sale, an agent suggests the owner make specific repairs needed prior to marketing the property at the listed price so the agent can market the property as “turnkey.”
Turnkey properties command a higher price and generally sell quicker. In addition, property deficiencies corrected prior to the owner completing the transfer disclosure statement (TDS) need not be brought to the prospective buyer’s attention as part of negotiations as the deficiencies have already been repaired and no longer exist. [See first tuesday Form 304]
However, when an agent suggests repairs be made to a property, owners often turn to the agent to handle contracting the recommended repairs.
An effective agent assists their client, be it the owner, seller, landlord or buyer, by contracting for repairs and maintenance needed to:
- prepare a property for sale or lease;
- comply with requests for repairs demanded by the buyer and approved by the owner;
- comply with closing conditions which include minor repairs when representing the buyer; or
- complement their property management services.
For repairs costing less than $500, the agent can contract with either:
- licensed contractors; or
- unlicensed individuals such as handymen.
However, when the proposed repairs cost $500 or more, an agent who does not have a contractors license is limited in involvement to recommending a competent licensed contractor. All the negotiations, contracting and oversight are the responsibility of the owner directly. [Bus & P C §7048]
The same rules apply to a property manager overseeing the ongoing repairs and maintenance of property they are managing. A broker, retained as property manager, is allowed to order out maintenance, repairs and replacements to be performed by third parties when the total cost is less than $500 per project.
Accordingly, an agent who provides property management services and is also a licensed contractor can order out work as authorized by the owner of the property regardless of the cost.
first tuesday’s Work Authorization is used by an agent when authorized by a client to contract for repairs, maintenance or improvements to their property, or the property to be purchased. [See first tuesday Form 108]
The Work Authorization provides information regarding the requested repair, replacement or maintenance needed. In addition, the authorization form includes:
- the estimated cost of the repairs with the client’s acknowledgement that the cost is only an estimate and not a guarantee;
- the client’s agreement to pay all repairs and improvements contracted for on their behalf;
- a provision allowing the client to advance the cost of repairs to be deposited into the broker’s trust account; and
- a threshold on the authorized cost of repairs. [See first tuesday Form 108]
The work authorization can be used for repairs totaling any amount authorized by the property owner. However, the agent must be sure they are operating in compliance with California’s contractors license scheme.