Considering Becoming an Owner-Builder?
Important information you need to know BEFORE pulling your permit!
The term “Owner-Builder” can mean three different things:
“Owner as Worker”, “Owner as Contractor” or “Owner as Employer”
Understand each has Benefits or Risk, and it is possible to combine them!
Thinking about becoming an Owner-Builder? Consider these important facts first:
Hiring a California Licensed Contractor means you do not personally perform any of the construction work. The permit is not taken out in your name. You are not personally responsible for the construction and you are not an Owner-Builder. Instead, you become a “Customer” and California law provides you the benefit of protection from poor workmanship, failure to finish the job and financial risk due to worker injury.
Benefit/Risk: Highest Benefits and the Least amount of Risk
Owner-as-Worker is a type of Owner-Builder where you personally perform the construction work. The permit is taken out in your name. You are personally responsible for the construction management, knowledge, workmanship, and completion of the job. You benefit by not paying others to perform this work for you and your risk depends on your own ability to complete the job correctly and successfully.
Benefit/Risk: Possible Benefit with Low Financial Risk
Owner-as-Contractor is a type of Owner-Builder where you personally act as your own General Contractor. The permit is taken out in your name. You hire California licensed sub-contractors to perform portions of the construction work. WARNING: The benefit of protection provided by law when you hire only California licensed subcontractors can turn to serious financial risk if you hire unlicensed contractors to perform any of the work.
Benefit/Risk: Possible Benefit and Significant Financial Risk
Owner-as-Employer is a type of Owner-Builder where you pay any unlicensed individual to perform any construction work valued at more than $500.00. The permit is taken out in your name. You are personally responsible for their employment requirements, supervision, performance, safety and welfare while on your property. WARNING: Cost savings benefit can turn to serious financial risk if you fail to deduct payroll taxes or provide workers compensation insurance for each worker.
Benefit/Risk: Possible Benefit with Significant Financial Risk
Work performed without approvals and/or permits is in violation of Section 105.1 of the California Building Code, which states:
105.1 Required. Any owner or authorized agent who intends to construct, enlarge, alter, repair, move, demolish, or change the occupancy of a building or structure, or to erect, install, enlarge, alter, repair, remove, convert or replace any electrical, gas, mechanical or plumbing system, the installation of which is regulated by this code, or to cause any such work to be done, shall first make application to the building official and obtain the required permit.
Consumer Complaints against Contractors
Over 20,000 consumer complaints are filed each year. Many complaints relate to owner/builder projects and include workmanship and workers’ compensation issues. Homeowners suffer financial harm due to defective workmanship and injured employees. Read What to Look for In a Contractor and Home Remodeling Contractors.
Following are alarming examples of what has occurred with Owner-Builder permits:
Example 1: Homeowner received insurance money to rebuild burned-down home.
- Owner/Builder permit pulled to rebuild structure.
- Unlicensed contractor built substandard structure – must be torn down and replaced.
- Estimated financial injury is $225,000.
- Additional financial injury – IRS threatened to tax insurance payout if house not completed by the end of the year.
Example 2: Brother-in-law had active license but filed an exemption from Workers Compensation insurance.
- Owner-Builder hires brother-in-law to remodel the bathroom.
- “Employee” (brother-in-law) falls and sustains multiple spinal and extremity fractures as well as a head injury and remains in a coma to this day.
- The Owner-Builder, who has sold the home, is now a defendant in a lawsuit for reimbursement for benefits paid to the injured worker (brother-in-law).
Example 3: Employee of contractor without Workers Comp is hired by Owner-Builder to remodel the kitchen. Employee suffers an injury that results in permanent disability.
- The Owner-Builder’s homeowner’s insurance policy on the house did not cover employees and a claim was filed against the Owner-Builder.
- The Owner-Builder is now a defendant in a lawsuit for reimbursement for benefits paid to the injured worker.
OWNERS BEWARE AND CONSIDER THE RISK BEFORE ACCEPTING FULL RESPONSIBILITY FOR YOUR CONSTRUCTION
- Unlicensed persons frequently have the property owner obtain an “Owner-Builder” building permit. This erroneously implies that the property owner is providing his or her own labor and material personally.
- Your homeowner’s insurance typically does not provide coverage for injuries sustained on your property by an unlicensed contractor and his/her employees.
- If you are considered an “employer” under state and federal law, you must register with the state and federal government. You must withhold payroll taxes, provide workers compensation and disability insurance, and contribute to unemployment compensation for each “employee”.
- If you fail to abide by these laws you may be subjected to serious financial risk.
Always Hire a Reliable and Dependable Contractor to Remodel your Home
Always work with a trustworthy contractor like DAD’s Construction. We are experts in bathroom, kitchen, and interior remodeling. We remodel and manage projects in an efficient manner. DAD’s Construction will do everything to minimize the possibility of change orders. Our team will make sure we have all the necessary information to prepare a proposal that meets your requirements. Rest assured that we will provide you with a detailed, by line-item contract. We will make sure that the contents of this agreement are properly and clearly communicated to you. If you have questions or need updates regarding your project, we will always answer your inquiries.
How Can I Receive More Information on Home Remodeling?
If you would like more information on enjoying the best bathroom, kitchen, and interior remodeling experience in Orange County, call Dan at (949) 380-0177 or at email@example.com for a free honest and trustworthy in home consultation. DAD’s serves all of South Orange County California. This includes Lake Forest, Mission Viejo, Foothill Ranch, Portola Hills, Ladera Ranch, Irvine, San Clemente, Dana Point, San Juan Capistrano, Rancho Santa Margarita, Coto de Caza, Dove Canyon, Laguna Niguel, Laguna Hills, Newport Beach, and Aliso Viejo).
“Taking Care of Your Home . . . The Way We Would Our Own”
Daniel A. Derkum is the owner of DAD’s Construction, a leading South Orange County, California design-and-build remodeling and renovation contractor, https://www.dadsconstruction.com. © DAD’s Home Services & Construction, Inc. All Rights Reserved.