Simple Things Real Estate Agents Should Know Before Referring a Contractor

As a real estate agent you have probably been bombarded with numerous requests by your clients for the names of contractors; floor guys, cabinet guys, tile guys, plumbers, electricians, handymen, etc. Before you refer any contractors or any vendors to your clients it is important to make sure you know who they are. Agents should seriously consider asking the following simple but extremely important questions below before referring contractors or vendors to their clients.

Contractor and vendor referrals can and will reflect your own professional judgment and probably will affect the most important stream of future business in your career. Agents are also fiduciaries and they must put their client’s interests and concerns above all else, and ultimately make the best available recommendations. Referring clients to a contractor or a vendor just because another realtor or friend says, “Oh, I’ve used them for years” is not advisable. You should always get to know the contractor or vendor before you refer them.

The following simple questions should be considered before you refer someone new:

1. What is the Contractor’s Background, Experience, and Time in Community?

Agents must know how long a contractor has been in business, their work experience, including how long they have been located in the area, and what licenses and types of insurance they possess. Also, it is important to know how long this particular contractor has lived in your community. A long time resident contractor is less likely to damage his/her reputation if they plan on staying in their long-term community. Moreover, ask for a list of references to call before you make the referral.

2. Does the Contractor Have Commercial General Liability Insurance?

CGL insurance is not required for contractors to be in business. Although this may seem odd it is a fact and a majority of smaller contractors do not carry CGL insurance. CGL insurance would be effective if a contractor caused property damage or personal injury on a client’s property during their work. This question is an absolute must prior to hiring a contractor.

3. Does the Contractor Use A Valid Construction Agreement?

In my experience 8 out of 10 construction contracts I read do not comply with the minimum state and contractor’s licensing law requirements. Typically, contractors unknowingly fail to leave out the important consumer protection provisions like mechanic’s lien notices, insurance clauses, three-day right to cancel requirements, and similar provisions. The best practice before you refer a contractor is to have them submit to you a sample contract such that your client has an opportunity to review it with counsel should they so choose.

4. Is the Contractor Adequately Capitalized?

In the last few years the number of contractors who end up on the wrong side of litigation, file for bankruptcy protection, or are judgment proof has skyrocketed. I always remind my clients that “there is a high price to the low bid,” in that it makes economic sense on all sorts of levels to do business with financially sound contractors even if they are initially more expensive. Most litigation against smaller contractors forces them into insolvency. A reputable well established contractor, with roots in the community and a stable balance sheet would be the wiser choice 9 out of 10 times. Don’t hesitate to ask the contractor how they are doing financially. The worst they could do is refuse to tell you and then you have somewhat of an idea of what they are about.

The Bottom Line

Ideally, your clients wouldn’t ask you for the referral in the first place, but that is not a reality and you are quite possibly the most knowledgeable person about real estate and construction they know. Your job prior to referring a contractor is to find out the answers to these questions such that you are well-informed and make the best possible referral to your clients you can. Doing your homework will give you an edge on your competition and your clients will think of you when someone asks them, “Do you know a realtor I could use?”