Archinect
anchor

Architect acting as owner-builder?

Feb 26 '14 33 Last Comment
OnMyWayToLicensure
Feb 26, 14 5:46 pm

Hi all,

I'm on my way to licensure, have some exams and some hours left, and looking forward to call myself Architect. However, a big source of income for me has been to renovate and lately build spec homes as an owner-builder. Will I still be able to do this as a licensed Architect presumably held to a higher standard? Or does this only come in to play if I stamp my own drawings (which so far has been stamped by the engineer).

Will the different insurances be affected if I at the same time as  being an owner builder am a licensed Architect (or in the shorter term have a design-build company)?

I assume some of you has either done spec homes of your own or had some form of interest in it and would appreciate your experiences.

Nick

 

Saint in the City
Feb 26, 14 8:50 pm

Any photos of your built work?

shuellmi
Feb 27, 14 12:58 pm

just want to second the question as this is something I've always been interested in.  I know there are several designer/ construction firms in the local area here and at least a couple of them are lead by architects, but not sure the issues involved.

OnMyWayToLicensure
Feb 27, 14 1:16 pm

Just to clarify I'm more talking about being a licensed architect and then building a house as a regular home owner, typically termed 'owner-builder'. I'm just assuming that it must have implications if you are a professional as well, just as someone who is a realtor must disclose this when they sell their own house. 

quizzical
Feb 27, 14 1:34 pm

As a licensed Architect, if you are involved in meaningful decision making on a project -- whether you stamp the drawings or not  -- you can be held to the same standard of care as any other licensed Architect involved in any other project.

I remember a case discussed in a risk management course I attended some years back where an Architect visited a college president for business development purposes. While meeting with the president, the Architect was asked whether he could help the college determine why the college's swimming pool was leaking.

The Architect had not designed the swimming pool but said he'd be happy to take a look -- however, he also said he could not be of any help unless the pool were first drained. The president called his building operations department and told them to drain the pool - which they did in a big hurry. The rapid drainage caused some downstream erosion on private property, which resulted in the college being sued for damages. In turn, the college sued the Architect who had recommended that the pool be drained -- and the college won.

As I recall the case, the Architect was held liable because he failed to adequately assess the physical downstream conditions before recommending that the pool be drained.

If you're operating in a professional capacity you are expected by the law to meet the minimum standard of care required of all professionals.

Now, having said that, I suggest that you consult an experienced construction attorney, and your E&O insurance carrier, to obtain authoritative counsel re. your risks and opportunities in the specific situation described in the OP above.

OnMyWayToLicensure
Feb 27, 14 1:59 pm

Horrible example, especially since it didn't sound like the college paid for the advice. Further, the drainage problem must have been a design issue from the beginning, surely it must be reasonable to expect a pool to be able to drain. Very scary.

quizzical
Feb 27, 14 2:08 pm

Juries (and plaintiff's lawyers) have a funny way of looking at what constitutes "professional advice" and "professional judgment".

won and done williams
Feb 27, 14 2:13 pm

Sounds like the architect should have hired a better lawyer...

Saint in the City
Feb 27, 14 4:32 pm

Definitely pay attention to the liability cautionary tales.  That said, you will find a best practices way to manage all that once you're licensed.  Other people that are no smarter than you have done it before you.

I'm not clear -- have you already built some spec houses?  If so, you're well ahead of the game in terms of applicable knowledge relative to construction processes, financing, market, etc.

OnMyWayToLicensure
Feb 28, 14 9:01 pm

Yes, I have a couple of houses under my belt, but I wonder if the insurance situation is likely to be more complex for someone who is also a licensed architect. My regular insurance guy didn't have a clue but I don't want any surprises afterwards.

file
Feb 28, 14 9:54 pm

Find out who provides your employer's E&O insurance and have a quiet conversation, on your own time, with the agent. You have a very specific insurance question and you're 'shooting craps' looking for an authoritative answer here.

OnMyWayToLicensure
Mar 1, 14 1:51 pm

Since I assume this site is populated with architects, I think I was primarily wondering if there was anyone who had maybe either built a house for themselves, or a spec, and would care to share their experiences. 

jla-x
Mar 1, 14 4:26 pm

Not really sure the exact reason, but Jonathan Segal says that if you want to be a design/developer not to get licensed.  

Janosh
Mar 1, 14 7:49 pm

Segal does multi-family and condo development, which is among the most heavily litigated areas of practice, and a target for predatory attorneys who scrape condo boards for lawsuit opportunities.  I think the issues for SFDs would be much different.

Saint in the City
Mar 2, 14 9:23 am

jla-x  -- in my opinion, Segal seems to be sort of neutral on the license issue -- he has been anti-license in the past, although he himself is now not only licensed, he is FAIA.  Plus he has gotten heavily into the architect / MRED education process for architects.   At the same time, his own son (Matthew) is knocking out projects in his office and is not licensed.

Matthew Segal has stated that there is little to zero reason for him to get licensed -- his approach involves having another architect - not his father - stamp the plans (legal in CA and elsewhere).  It's hard for most licensed architects to enjoy the idea of this process, since the stamping architect is nothing more than a legally liable tool, but it's a pretty savvy / smart approach.

jla-x
Mar 2, 14 7:22 pm

I'm trying to do the same thing as the op.  I Did 2 remodels already and will probably do 3-5 more before I am ready to do a spec.  I do most of the work myself and have learned a lot.  Obviously once I do a new build I will hire contractors, but nothing better than doing construction work to learn about it.  Anyway, the biggest obstacle for me seems to be the cost of land not having dropped in relation to the housing prices during the crash.  I'm having a hard time making the numbers work. I know my area very well and even had a RE license a few years back, but still, I can't seem to find a lot that makes sense to build on.  Curious how the op made it work.  

OnMyWayToLicensure
Mar 3, 14 12:59 am

It is obviously extremely region based, and it does require capital, but my experience has been that most affluent areas work. If you see residential construction in an area it is usually prime for specs. Few homes are budgeted to be above market value when they are finished.

For me it has almost been harder to determine profitability in remodels and flips, as you never really know the final cost when you buy an older house, and you're capped by the neighborhood values. With new construction it is at least seen as something unique and goes into an upper price tier. Assuming you make an attractive house! 

jla-x
Mar 3, 14 1:28 am

That's very true.  The comp culture of RE appraisals makes it difficult unless you are either in a very high end area where home value is based more on quality or a rural yet affluent area such as Sedona where comps range greatly.  My goal is to build middle class homes of a high quality.  Small courtyard houses, passive cooling, etc.  Architecture in reach of the middle class person maybe 1600-2400 ft.2 max.  This goal seems to be economically unfeasible.  It all works until I factor in the crazy high lot prices.  For example I found a lot in a nice neighborhood with older homes around the 200-500k price range.  The area is desirable for a number of reasons.  The lot was priced at 200k...

OnMyWayToLicensure
Mar 3, 14 5:37 pm

In general though, the AIA document discussing business structures for architects states that as licensed professionals, architects are personally liable for their professional acts. It also says that architects may transfer some of the risk of professional liability to an insurer, but they may not transfer or otherwise assign the liability itself to any other party, including a corporate entity. The legal structure of an architecture firm cannot be counted upon to shield an architect from professional liability.

I would be interested in hearing from a licensed architect here, ideally alone or a small partnership, which strategy they chose. I tend to remember from school that architects are typically not allowed to form LLCs? How do we protect us best then?

quizzical
Mar 3, 14 6:28 pm

If you are licensed, you cannot shield yourself from professional liability via any particular corporate structure. Different organizational structures (i.e. C-corp; sub-S Corp; LLC; LLP, etc) generally are adopted for reasons other than protection from professional liability.

What you can do is provide competent services that meet at least the minimum standard of "professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances."

Beyond that, licensed architects rely on professional liability insurance as a hedge against the potential cost of making a mistake.

rihanageorge
Mar 4, 14 3:07 am

I think one can gain some various aspects of the above thread so, One must definitely go through the respective thread for sure.

jla-x
Mar 4, 14 11:19 am

There is a pllc but not too sure how it affects liability?

quizzical
Mar 4, 14 1:33 pm

Neither a Professional Corporation (PC) nor a Professional Limited Liability Company (PLLC) provides protection against professional liability associated with professional malpractice by an individual professional.

However, in a multi-professional practice these forms of organization can protect owners from the malpractice of other owners within the firm.

Not all states recognize the PLLC entity.

See this link for more: https://www.incorporate.com/professional_corporation.html

wurdan freo
Mar 4, 14 2:05 pm

Asset Protection for Physicians and High-Risk Business Owners by Robert J. Mintz

stone
Mar 4, 14 3:13 pm

^ You might want to read the "1 Star" reviews before purchasing Mintz's book. ^

OnMyWayToLicensure
Mar 4, 14 4:31 pm

So Quizzical, if I'm interpreting you correctly a PC or PLLC has no effect if you are the only architect in the firm, but could have significance if you have one or more partners?

OnMyWayToLicensure
Mar 4, 14 4:32 pm

Btw, the Jonathan Segal articles I've found are very interesting, thanks.

quizzical
Mar 4, 14 6:38 pm

OMWTL: yes, with respect to professional liability protection that is correct . As licensed professionals, we always are (and always will be) personally responsible for the consequences of our professional decisions - which is as it should be - regardless of how we organize our firms. However, the economic risks associated with that responsibility can be ameliorated to a large extent by providing competent services, carrying appropriate E&O insurance and paying careful attention to contract language.

Nevertheless, different forms of organization can provide important protections related to commercial creditors and, depending on your situation, possible tax and administrative advantages.

won and done williams
Mar 4, 14 9:12 pm

Correct me if I'm wrong, but the organizational structure can protect your personal assets, i.e. under certain organizational structures - corporate, LLC - the company can essentially be bankrupted, but the partners' personal assets are shielded. This is not the case as a sole proprietor or in a partnership, no?

quizzical
Mar 4, 14 11:53 pm

won - for C-Corps, S-Corps, LLCs, LLPs, PCs and PLLCs, in the case of commercial liability (e.g. exposure to your firm's bank for unpaid loan balances, or to your engineers or reprographics company for unpaid invoices, or to your landlord for back rent) the claimant can collect damages only up to the value of the firm's remaining assets (unless personal guarantees are involved, which usually is the case with bank loans).

However, professional liability, arising from defective services, is not so constrained and is not shielded by the 'corporate veil'.

I've seen firms exposed to potential E&O liability well in excess of their E&O insurance coverage. If the final judgement / settlement were to exceed the policy limits, then the individual professional(s) could be held personally responsible for the difference. Those situations can get a little dicey and carry a very high 'pucker factor'.

However, it is a truism that most construction industry lawyers know that most architects have limited economic net worth, so in practice most proven E&O claims settle within available policy limits -- unless the claimed 'defect' is just so egregious that the plaintiff wants / needs to go after every possible dollar, in which case personal assets can be pursued.

won and done williams
Mar 5, 14 8:52 am

Thanks for the clarification, quiz. Very helpful.

OnMyWayToLicensure
Mar 5, 14 5:30 pm

From what I understand Architects are professionally also somewhat protected by the concept of 'standard of care', i.e. it is not reasonable for a professional to be completely fault free and that mistakes are human. The way I interpret this that certain mistakes are acceptable as long as they aren't due to negligence or ill will, but how this stands up in court is another matter I guess.

quizzical
Mar 5, 14 5:53 pm

The "standard of care" can be a powerful defense once you actually get in front of a judge and jury. However, many clients don't immediately embrace the concept - even when it's explained to them in some detail - and often will drag your ass into court anyway.

So, even though you may have a strong legal defense, you still may be exposed to the distraction and expense of dealing with the law suit. That's why good E&O coverage is so important -- your professional liability company typically will manage the defense on your behalf (subject to your deductible) although those legal fees usually are deducted from your coverage limits for that specific claim.

wurdan freo
Mar 6, 14 12:45 am

@ Stone - I could see how Mintz crossed the line. One of his chapters is specifically entitled "Tax Havens".  Alot of the information in the book, however, is an easy read and covers important topics such as lawsuits, entities, trusts.  At the very least it is a decent primer on these topics that will help you prepare to discuss with your estate planning attorney. Assuming, of course, you start to develop a net worth as an architect...

This book was actually recommended by J Segal. 

  • ×Search in:


Please wait... loading
Please wait... loading