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Homebuilder
                                               LICENSING
Rather than licensing builders and remodelers, Texas ...
Buying a home can be exciting, but it can also be risky and financially devastating. The decisions are complex – legally, ...
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Homebuilder Licensing

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Compared Licensing & Registration and Texas consumer protections for buying Existing and New homes.

In Texas you personally need a license to drive a car or catch a fish. And your doctor, barber, tattoo artist and home decorator need a professional license to practice their art. But your homebuilder doesn't need a license. Neither do the trades that install
structural elements of your home such as the foundation, framing and roof. That’s absurd.

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Homebuilder Licensing

  1. 1. Homebuilder LICENSING Rather than licensing builders and remodelers, Texas simply “registers” them. Registration, however, is the least restrictive form of regulation. It doesn’t require an exam or education or proof of skill or competency. It doesn’t keep out or weed out bad builders. And it doesn’t protect homeowners. That’s why good and reputable builders support licensing. In Texas you personally need a license to drive a car or catch a fish. And your doctor, barber, tattoo artist and tow truck operator need a professional license to practice their art. But your homebuilder doesn't need a license. Neither do the trades that install structural elements of your home such as the foundation, framing and roof. That’s absurd. Licensing vs. Registration Registration – presumes that an activity is permitted by right. It collects basic information about registrants but does not control who can work in an industry or judge their ability. If registrants don’t follow rules, their registration can be withdrawn, but they can’t be denied the opportunity to participate. Licensing – on the other hand, grants legal permission to do something that’s otherwise forbidden. For instance, a driver’s license is required for the privilege of driving a car on public roads. Driving without a license is against the law and is subject to penalties. Licensing usually involves the police power of the state, so if one violates the licensing law, either by acting without a license, or by failing to follow the rules governing the license privilege, one is subject to civil or criminal penalties. Arizona has one of the strongest builder licensing programs and has been at it since 1931. California has licensed builders since 1929. 26 other states also license homebuilders, including 10 out of the 13 southern states where most of the home building is occurring. Texas, Oklahoma and Kentucky are the only southern states that don’t license builders. One factor behind recent licensing activity is fraud in the aftermath of big storms. Other factors include substandard construction, failure to comply with building codes or repair construction defects, failure to pay subcontractors, and builder insolvency. Licensed practitioners in all professions know how licensing improves their work quality, stature, respect, credibility, earning potential, and chances of continued success. Licensed and skilled practitioners are consistently better prepared to compete than unskilled or unlicensed ones. Licensing also helps to protect the public and prevent lawsuits by addressing the root cause of them. Who to license? As Representative Allan Ritter said during Sunset Advisory Commission TRCC hearings on September 28, 2008, “Every craftsman in Texas should be licensed, not just electric, plumbing and HVAC.” Because this won’t happen overnight or in one legislative session, homebuilders, remodelers and general contractors should be the first. Their contractual relationship with buyers puts them at the top of the value chain – and the responsibility chain. Later, licensed builders will encourage other trades to become licensed too. Doing so will help them find qualified and accountable subcontractors they can trust. Good builders also want home inspectors licensed. They know that finding and fixing construction defects early on is better and cheaper than risking code violations that endanger their license or the health and safety of the public. License Administration The Texas Department of Licensing and Regulation (TDLR) is ready to take on the task and has 100 years of regulatory experience, compared to the TRCC which has none. This agency is ideal for regulating the home building industry, so House Bill 2243 would abolish the TRCC and replace registration with licensing under TDLR. CONTACT: TomArcher@HomeownersOfTexas.org (President) 807 Brazos Street, Suite 304, Austin, TX 78701 (512) 502-5349 UsedHomeVersusNewHomeV3.pdf © 2009, Homeowners of Texas, Inc. February, 2009
  2. 2. Buying a home can be exciting, but it can also be risky and financially devastating. The decisions are complex – legally, financially and technologically – and the transaction requires the expertise of trusted allies. These allies include licensed professionals such as a realtor, real estate inspector and attorney. Unfortunately, Texas laws give consumers better protection when buying existing homes than when buying new. Until this imbalance is corrected, it will remain safer to buy older homes. Demand for new homes will suffer. Here are some of the reasons why: Buying an Existing Home in Texas Buying a New Home in Texas Realtors are Licensed. Homebuilders & Contractors are NOT Licensed. The Texas Real Estate Commission (TREC) assists and protects The Texas Residential Construction Commission (TRCC) registers consumers of real estate services, thereby fostering economic builders and remodelers. The agency does not license builders growth in Texas. Through its programs of education, licensing and instead protects them while regulating homeowners. and industry regulation, the Commission ensures the availability Without licensing, the agency has no way to ensure that of capable and honest real estate service providers. builders are capable or honest and can’t weed out bad builders or help consumers find good ones. Real Estate Inspectors are Licensed. Home Building Code Inspectors are NOT Licensed. TREC requires education, experience and liability insurance to become a real estate inspector. Inspections cover conditions Home inspectors need a greater knowledge of building science that are present and visible. They don’t cover unseen structural and should monitor the construction process from one stage to elements that can cause problems later, such as what’s behind another. But unfortunately they are not licensed or regulated walls or inside foundations. and may have long-established builder relationships. State-approved Sales Contracts Protect Buyers. TAB-provided Contracts Favor Builders. TREC helps protect the public by requiring the use of State- The Texas Association of Builders (TAB) promotes its Contracts approved contract forms for any agreement that binds the sale, Package as saving its members thousands of dollars in attorney exchange, option, lease or rental of real property and defines fees. The contracts include mandatory Binding Arbitration the legal rights of all parties. Licensees may only fill in the blanks clauses that block homeowner access to courts, are generally provided and may not add to or strike standard wording. nonnegotiable, and protect builders rather than homeowners. Full Disclosure is Required. Disclosure is Not Required. TREC requires the seller to disclose the known condition of the Texas does not require builders to disclose construction defects, property, including soil conditions, foundation, roof, ceilings and soil conditions or other problems. Unscrupulous builders take walls, water penetration, aluminum wiring, termites, range, advantage of this deficiency and do their best to conceal known oven/microwave, dishwasher, disposal, water heater, central problems. Even when consumers complain to the TRCC and A/C, security system, smoke detectors, intercom, plumbing, defects are confirmed, the agency lacks the ability to compel pool/spa, and garage door openers. builders to fix the problems. Home Warranty is an Option. New Home Warranties can have Illusory Terms. The Sellers's Disclosure of Property Condition is not a substitute Texas requires builders to provide minimum warranties of one for any inspections or warranties the purchaser may wish to year for workmanship and materials; two years for plumbing, obtain. Consumers can buy home warranty insurance to cover electrical and HCAV systems; and ten years for major structural appliances and systems. Terms vary, but these policies generally components and habitability. The terms can be illusory because don’t cover the expensive problems that can occur in of TRCC defined exemptions, however, and builders can shift foundations and other structural elements. their responsibility to 3rd-party warranty companies. Buyers have Flexible Legal Remedies. Buyers have Limited Legal Remedies. If complaints are filed against licensed professionals, their The Residential Construction Liability Act (RCLA) already license can be revoked. In addition, homeowners have various protects builders by preventing class action suits and the other options for resolving disputes with sellers, realtors, recovery of punitive damages and attorney fees. TRCC further inspectors, attorneys, or title & mortgage companies, including protects them through a State Inspection Process that blocks mediation, arbitration and civil suit. access to other legal remedies.

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