Clearing Up Confusion about Contracting Requirements for Online Home Improvement Marketplace Companies

CSLB has been addressing emerging issues involving online marketplaces and contractor referral websites. In its most basic form, online marketplaces are e-commerce websites that link consumers to products and/or services that are provided by multiple third parties. In these situations, the e-commerce operator processes the transactions. Many referral websites charge contractors a fee for leads.

For either online marketplaces or referral websites, there's no argument that the contractor performing the home improvement work must hold a CSLB-issued license. But, does the online marketplace or contractor referral website need to have a California contractor license? To help clear up any confusion CSLB issued a Fast Facts information sheet outlining requirements for these companies.

The following is a synopsis of the information provided in the Fast Facts:

California Business and Professions Code (BPC) § 7026 defines a contractor as a "builder," which includes any person who undertakes, offers to undertake, or purports to have the capacity to undertake, or submits a bid for, construction or demolition of any building, home improvement, or project. The definition includes those who do construction or demolition work themselves or "by or through others."

Therefore, persons engaged in the business of home improvement must be licensed in the appropriate trade before advertising and/or submitting bids for construction and construction-related services. The license requirement is for jobs that total $500 or more in labor and materials (BPC § 7028).

Contractor referral services are legal in California, but within limits. It's important to remember that a referral service cannot solicit or negotiate contracts on behalf of a contractor, or offer to undertake to, or purport to have the capacity to undertake itself or through others a construction project (BPC § 7026).

A referral service may act as a repository for licensed contractors and provide contractor contact information to prospective customers. However, to avoid allegations of unlicensed activity, the prospective customer should enter into a contract directly with the licensed contractor and make payments directly to that licensed contractor.

Also, it is a criminal misdemeanor (BPC § 7027.1) for any person to advertise for construction or work of improvement unless that person holds a valid license in the classification so advertised.

In addition, with limited exceptions, a CSLB-issued home improvement salesperson registration is required for any person who is engaged in the business of soliciting, selling, negotiating, or executing contracts on behalf of a licensee for home improvements.

You can find the Fast Facts information sheet here on the CSLB website.