California Contractor Licensing Update 2025: Understanding AB 2622

Effective January 1, 2025, Assembly Bill 2622 (AB 2622) significantly changes California's contractor licensing requirements. This update directly affects real estate agents, brokers, investors, and homeowners who hire individuals for home improvement or construction projects. Below, I will explore the key elements of AB 2622, why it matters even if you are just starting real estate school, and how real estate professionals can use this knowledge to serve their clients better and protect their interests.

Key Changes Introduced by AB 2622

A. Increased Exemption Limit

Under prior law, unlicensed individuals could perform construction work if the total cost of labor, materials, and other project expenses did not exceed $500. Under AB 2622, this threshold is raised to $1,000, effectively allowing unlicensed persons to handle more minor jobs without violating California's Contractors State License Law.

B. Building Permit Requirement

The new exemption applies only if no building permit is required. If the scope of work triggers a building permit—for example, electrical rewiring, plumbing changes, or structural modifications—an unlicensed individual cannot legally take the job. In such cases, a licensed contractor is mandatory.

C. Restriction on Employing Others

A critical addition is that unlicensed individuals under this exemption cannot employ any other person to perform or assist with the work. When another individual is brought on board—whether paid or unpaid—the exemption no longer applies, and a contractor's license is required.

Impact on the Real Estate Industry

A. Real Estate Agents and Brokers

1. Avoiding Liability

• Proper Disclosures: When representing clients, listing agents and sellers should confirm whether any recent renovations fall under this new $1,000 limit and whether permits were required but not obtained. Disclosing unpermitted or incorrectly permitted work could expose liability issues.
• Compliance Check: By understanding AB 2622, agents can spot red flags—like multiple small jobs potentially split to avoid licensing requirements—thereby safeguarding clients from legal disputes.

2. Negotiation Leverage

• Price Adjustments: Knowledge of whether work was performed by a licensed contractor or an unlicensed individual can significantly affect property valuations. Unpermitted work or questionable quality might justify a lower offer or prompt a repair request. Conversely, adequately documented upgrades can bolster a seller’s asking price.
• Confidence in Transactions: A firm grasp of these regulations allows agents to negotiate more effectively. Agents identifying compliance issues can use that information to protect their clients' interests and potentially secure better terms.

3. Building Trust and Credibility

• Demonstrating Expertise: Clients value real estate professionals who can expertly navigate the complex web of state regulations. By explaining AB 2622 and its implications, agents position themselves as a trusted advisor, which can lead to stronger referrals and repeat business.
• Professional Growth: Continued real estate education on legislative updates helps agents maintain a competitive edge and enhances their reputation in a crowded marketplace.

B. Real Estate Investors

1. Permitting Nuances

• Local Codes: Depending on local building codes, even smaller jobs—like adding electrical outlets or replacing certain plumbing fixtures—might trigger permit requirements. Investors should do due diligence before starting any project.
• Avoiding Costly Mistakes: Failing to secure permits when required can lead to fines, forced rework, and delayed timelines that eat into profit margins.

2. Cost Savings vs. Quality Concerns

• Safety Issues: Hiring an unlicensed individual can save money, but the risk of subpar workmanship is real. Poor electrical or plumbing work can create health or safety hazards, hurting the property's long-term value.
• Hidden Problems: Unlicensed work may introduce latent defects, issues that surface after the project is complete and potentially cause expensive repairs.
• Insurance and Financing: Coverage or financing can be jeopardized if an insurer or lender discovers that work was done improperly or without the proper permits. Some insurance policies may exclude damages stemming from unlicensed or unpermitted work.

3. Long-Term Marketability

• Resale Considerations: When an investor plans to flip or rent out a property, prospective buyers and tenants often ask about the quality of renovations.
• Balancing Act: Using an unlicensed individual may make sense for tiny, simple tasks under $1,000. However, hiring a licensed contractor is often safer for anything potentially requiring a permit or multiple workers and may improve the property's overall appeal.

C. Homeowners

1. Due Diligence

• Insurance Review: Before hiring an unlicensed individual for small projects, homeowners should check whether their insurance covers injuries or damages from unlicensed work. Some policies have exclusions.
• Written Contracts: Even for minor tasks, having a written agreement that outlines the scope of work, payment terms, and timelines can prevent disputes.
• Confirm Permits: Always verify if a building permit is required. If so, the homeowner must hire a licensed contractor regardless of the project's cost.

2. Risks and Benefits

• Potential Cost Savings: The increased $1,000 threshold can make minor repairs or aesthetic updates more affordable for homeowners.
• Liability and Quality: Hiring an unlicensed individual may leave the homeowner limited legal recourse if the job goes wrong. Always weigh immediate cost savings against the potential for future headaches.

3. Staying Compliant

• Avoiding Fines: Projects without the required permit can lead to penalties and complications during a future sale.
• Protecting Property Value: Quality, properly documented work generally enhances a home's value, while unpermitted or shoddy work could detract from it.

Advertising Changes Under AB 2622

Unlicensed individuals may now legally advertise for jobs under $1,000 provided:

• No Permit Required: The work doesn't trigger any building permit requirements.
• Clear Disclosures: The advertisement explicitly states: "I am not a licensed contractor."
• Solo Work: Unlicensed people cannot employ anyone else to assist with the job.

Misrepresenting licensure status or splitting a more extensive project into multiple smaller ones (each under $1,000) to evade these rules is illegal and can lead to penalties.

• or lead to financial losses.

Your Next Steps

1. Read the Full Text of AB 2622

• For the exact language of the law, visit the California Legislative Information website and review Business and Professions Code Sections 7027.2 and 7048.

2. Consult the Contractors State License Board (CSLB)

• Check a contractor's license status or learn more about licensing requirements by visiting the CSLB website.

3. Consider Continuing Education

• Whether you're an agent seeking to differentiate yourself, an investor optimizing your strategies, or a homeowner ensuring compliance, staying educated on these laws is crucial. Find reputable real estate courses or legal resources that delve into contractor licensing, property disclosures, and best practices.

4. Perform Due Diligence

• Confirm if a building permit is required. Always get references, a written scope of work, and proof of insurance—even if the work seems small.

AB 2622 introduces critical updates to California's contractor licensing laws by raising the exemption threshold to $1,000, clarifying the need for building permits, and restricting unlicensed individuals from hiring help. These changes affect real estate agents, brokers, investors, and homeowners, influencing how renovations are approached, disclosed, and negotiated.

Understanding these regulations can provide:

• Liability Protection for real estate professionals who accurately disclose property improvements.
• Investment Security for those fixing and flipping properties or building their rental portfolios.
• Peace of Mind for homeowners making small-scale improvements while avoiding legal pitfalls.

Staying informed is half the battle, and resources are available to help you succeed. By taking advantage of educational programs and consistently monitoring regulatory updates, you'll be well-prepared to navigate California's evolving real estate landscape.

With AB 2622 having taken effect on January 1, 2025, now is the time to proactively adapt, ensuring you and your clients remain compliant and well-informed in California real estate.

Love,

Kartik