Remodeling Magazine

[Dick Seibert]

Joe:

I have seen articles you have written for Remodeling Magazine, while eating dinner tonight I was appalled to read an article advocating kickbacks. For all here who might think of taking this advice you need to be aware that it is illegal in California, and I suspect other states adopting license laws similar to California's.

The article says:

To find new prospects, two years ago Todd Jackson, owner of Jackson Design and Remodeling, in San Diego, formalized a client referral program called “Adventures Within.” Lead sources sign up on the company website. There are four levels of rewards, from baseball tickets to trapeze flying lessons, gondola rides, and wine tastings. Rewards are not contingent on Jackson’s getting the job, but they must be substantial. “I’ve never had anyone take advantage of this” and offer a false lead, Jackson says.¹

Here is a link to Jackson Remodeling's program.

California B&P Code §7157 states:

§ 7157. Prohibited inducements (a) Except as otherwise provided in subdivision (b), as a part of or in connection with the inducement to enter into any home improvement contract or other contract, which may be performed by a contractor, no person may promise or offer to pay, credit, or allow to any owner, compensation or reward for the procurement or placing of home improvement business with others.

(b) A contractor or his or her agent or salesperson may give tangible items to prospective customers for advertising or sales promotion purposes where the gift is not conditioned upon obtaining a contract for home improvement work if the gift does not exceed a value of five
dollars ($5) and only one such gift is given in connection with any one transaction.

(c) No salesperson or contractor’s agent may accept any compensation of any kind, for or on account of a home improvement transaction, or any other transaction involving a work of improvement, from any person other than the contractor whom he or she represents with
respect to the transaction, nor shall the salesperson or agent make any payment to any person other than his or her employer on account of the sales transaction.

(d) No contractor shall pay, credit, or allow any consideration or compensation of any kind to any other contractor or salesperson other than a licensee for or on account of the performance of any work of improvement or services, including, but not limited to, home improvement
work or services, except: (1) where the person to or from whom the consideration is to be paid is not subject to or is exempted from the licensing requirements of this chapter, or (2) where the
transaction is not subject to the requirements of this chapter.

As used in this section “owners” shall also mean “tenant.”

Commission of any act prohibited by this section is a misdemeanor and constitutes a cause for disciplinary action.

I know business is tough, but that is no reason for engaging in, or encouraging others to engage in, unethical or illegal activities. Even in states without such prohibitions, a friend or neighbor has a right to assume that a referral is honestly given, and not the product of a kickback.



¹ http://www.remodeling.hw.net/sales-l...y-for-you.aspx

[jstoddard]

Huh?
I didn't write that. My columns in Remodeling Mag are about technology or business process improvement. I very seldom write about marketing, lead generation, etc except as to how it applies to sales automation systems and/or e-mail marketing.. that sort of thing. My little 300 word mini-column is always on a page with someone else' article so it looks like the whole thing is my byline - but the other story is almost always an HWI in-house editor.

That said, so far as I know it's only a "kickback" if it's not disclosed that someone else is being compensated because a buyer is signing a contract with a builder/remodeler. Incentive programs for leads are commonplace in all 50 states so far as I know. I can pay you for a lead - but I have to disclose it to my buyer that a commission or other compensation is being paid to a third party.

It's handled pretty easily with " Our customer so and so has recommended we contact you for X - we have a referral program and here it is... your friend will receive $XX if you choose us as your contractor". You can make some extra money too by referring us to your friends and family...."

Personally - I do not participate in any programs like that from vendors. I will not take a dime from a vendor of a software product or service to shortlist their wares in my evaluation reports or other analysis that we do for clients. There is no amount of monetary incentive that would persuade me to recommend anything other than the best possible solution - and we arrive at that conclusion objectively via a top-down analysis of the company's requirements. In fact, once that sort of thing is disclosed, the intent often backfires.

If they do offer money - and many do offer something like a one-time 5-10% referral fee - I simply disclose it to the client and let them take it as a discount IF they choose to use that vendor. It's silly to think that a couple hundred bucks would influence a company in a decision of that size - and it never has to my knowledge.

Xactimate did send me a windbreaker type coat one time after we short-listed them to a remodeler. I kept it but made them send one to the client as well. Probably worth $25 or so.

JLS

[Dick Seibert]

Joe:

I didn't say you wrote it, I said that you wrote for that magazine, after the article there were the initials SF, so I assume it was Sal Afano, If you know him you should inform him that what the guy he extolled is doing is illegal, I posted the complete section of the law above, California limits any incentive to $5 and only once per job. I think Remodeling should post a warning to all California contractors that what Jackson is doing is illegal, and others in other states should check their state law before engaging in anything like that. It is a misdemeanor and could and should be punishable by jail time.

[jstoddard]

Dick
You need to write a letter to the Editor at Remodeling. Initials SF are not Sal Alfano - very doubtful Sal would make a mistake like that I worked with him for years and assure you he is a real stickler for factual accuracy- and detail. (He is SA)

SF is Stacey Freed who is my editor - I can forward your comments to her.

JLS

[jstoddard]

PS - Stacey is no slouch either - you'd better be positive of yourself or be prepared to be challenged in public and possibly proven wrong. I don't see Stacey making a mistake like this either - she's very good and well-rounded... knows a lot about a lot.

I'm not going to comment on the legitimacy of your claim until I have time to study the issue. Remodelers in CA have been doing referral programs for decades. How, exactly, is what you read any different ?

Again - so far as I know - as long as the program is fully disclosed to all parties, there is nothing wrong with it.

JLS

[Dick Seibert]

Joe:

I posted the law from the latest statutes, I act as an arbitrator for the State License Board and hear cases against contractors who violate the License Law, the Counsel to the Board a few years back ran proposed statues affecting contractors by me for comment before they were presented to the legislature.

It's very clear and limited to a value of $5.

§ 7157. Prohibited inducements (a) Except as otherwise provided in subdivision (b), as a part of or in connection with the inducement to enter into any home improvement contract or other contract, which may be performed by a contractor, no person may promise or offer to pay, credit, or allow to any owner, compensation or reward for the procurement or placing of home improvement business with others.

(b) A contractor or his or her agent or salesperson may give tangible items to prospective customers for advertising or sales promotion purposes where the gift is not conditioned upon obtaining a contract for home improvement work if the gift does not exceed a value of five dollars ($5) and only one such gift is given in connection with any one transaction.

[dgbldr]

Joe,

Dick is absolutely right. Both ethically and legally. You SHOULD forward his comments to your editor and feel free to forward mine as well.

Michigan has similar statutes on the books and it was one of the first things I had to memorize for the builder's license test years ago. In Michigan, you cannot sell on behalf of a builder unless you are registered as the builder's salesperson (which requires a licensing test) and then you can only sell for that one builder. If the salesperson changes jobs, he/she must re-register. It is illegal both to give and to receive compensation otherwise.

Regardless of legalities, the ethics of recruiting and paying for referrals are pretty obvious.

As a more general observation, I have noticed for a while that Remodeling occasionally publishes stuff that is factually untrue or grossly misleading. I think the editors do a poor job of checking the facts in the articles they publish. I take everything I read there with a large grain of salt.

[philthegreek]

Joe:

I have seen articles you have written for Remodeling Magazine, while eating dinner tonight I was appalled to read an article advocating kickbacks. For all here who might think of taking this advice you need to be aware that it is illegal in California, and I suspect other states adopting license laws similar to California's.

The article says:

Here is a link to Jackson Remodeling's program.

California B&P Code §7157 states:

I know business is tough, but that is no reason for engaging in, or encouraging others to engage in, unethical or illegal activities. Even in states without such prohibitions, a friend or neighbor has a right to assume that a referral is honestly given, and not the product of a kickback.



¹ http://www.remodeling.hw.net/sales-l...y-for-you.aspx

Dick, first of all, your first sentence reads as if you are indicating that Joe wrote the article in question.
Secondly, Joe said he would forward your comments to his editor so what's the big deal. You seem like you're jumping down his throat for no good reason.
Third, I don't think it's a "kickback" if someone gets a reward for a lead if it is regardless of wether that lead pans out or not. I think what was implied by the term "substantial lead" was that it could not be for a closet repair, only something large like a kitchen remodel, but still, independent of wether it goes to contract or not. Could you clarify your comments a little more?

phil

[Chuck Kiser]

Does Service Magic not operate in California? What the heck is the difference?

[Lavrans]

Does Service Magic not operate in California? What the heck is the difference?

Does service magic pay the clients for leads? I didn't think so (but I've never looked at them too closely)- they get paid by the contractors who are signed up with them- they aren't rewarding the people who call in looking for contractors. Although- if they give a discount for using their services, that could appear to be a conflict, maybe?

[Overbuilders]

I believe what Chuck is trying to say is, SM is in effect receiving a payment for giving referrals to contractors.

[Chuck Kiser]

Does service magic pay the clients for leads? I didn't think so (but I've never looked at them too closely)- they get paid by the contractors who are signed up with them- they aren't rewarding the people who call in looking for contractors. Although- if they give a discount for using their services, that could appear to be a conflict, maybe?

My point Lav is that any lead/referral is assumed to be genuine, meaning personal experience going from a person or business you trust. Not a paid Barker. In the case of service magic the consumer knows the name and trusts that any contractor they send is trusted and vetted by them. Yes the contractor does pay, but they are not vetted by SM anymore than the CC number was good when SM swiped it.

[Chuck Kiser]

I believe what Chuck is trying to say is, SM is in effect receiving a payment for giving referrals to contractors.

Correctomundo Richie.

[Dancing Dan]

High horse Silver, and away. If only we could all live up to Dick's high standards.

[Dick Seibert]

The B&P Code apples only to licensees, not to the general public, if Service Master is not a contractor the Code doesn't apply to it. The B&P Code doesn't even apply to unlicensed contractors, if the License Board wants to discipline an unlicensed contractor they can't do anything, so they notify the local District Attorney to prosecute for contracting without a license, they only have jurisdiction over those who submit to jurisdiction by obtaining a license.

Sorry Joe if my first sentence was unclear, instead of "I have seen articles you have written for Remodeling Magazine, while eating dinner tonight I was appalled to read an article advocating kickbacks.", I guess I should have said "I have seen articles you have written for Remodeling Magazine, while eating dinner tonight I was appalled to read an article advocating kickbacks by a writer with the initials S.F."