You Recommended a Contractor and It Went Wrong. What You’re Actually Liable For.

Handing a client a contractor’s name is generally an introduction, not a warranty on that contractor’s work. Most claims stop right there. What creates real exposure is narrower and more specific: recommending someone unlicensed, hiring or signing on the client’s behalf, guaranteeing the outcome, or having a financial interest you did not disclose. If you are an agent, a claim like that lands on your errors-and-omissions policy, not your general liability policy. Below is what to do in the first 48 hours, and how to keep giving out names without carrying the risk.

If you sell real estate or manage property in Phoenix, you give out contractor names constantly. A listing needs a roof looked at before photos. A tenant’s AC quits in July. A buyer walks the inspection report over and asks who fixes the panel. You are not being paid for any of that. You do it because the client asked and you knew somebody.

Then one of them doesn’t show up for two weeks, or takes a deposit and stops answering, or does work that fails inspection. And the client, reasonably enough, comes back to you, because you are the one who said the name out loud.

Are you legally liable for a contractor you recommended?

In most cases, no. A contractor is an independent business, responsible for its own work and carrying its own insurance. Passing along a name is generally treated as an opinion rather than a promise about someone else’s workmanship, and that is the reason the majority of these situations end as an unpleasant conversation rather than a claim.

The exceptions are what matter, because they’re easy to trip over without noticing. Exposure tends to show up when one of these is true:

• The contractor wasn’t licensed. This is the big one, and it’s the one you can check in about ninety seconds. In Arizona, most contracting work requires an active licence from the Registrar of Contractors. An unlicensed contractor also strips your client of the Recovery Fund, which is covered below.
• You hired, scheduled, or signed on the client’s behalf. The moment you’re arranging the work rather than introducing the person, you look less like a referrer and more like a party to the job.
• You vouched for the outcome. “He does great work, you’ll be happy” is a normal thing to say and a bad thing to have said, in writing, to a client who is now unhappy.
• You had a financial interest and didn’t disclose it. An undisclosed fee is a different category of problem from a disclosed one. Disclosure is the entire difference.
• You already knew there were problems. Passing along someone you’d heard complaints about is the fact pattern that turns a referral into something worse.

The scale of what can go wrong is worth sitting with. In a public thread where agents discussed whether they recommend remodelers, one described a vendor they’d referred accidentally burning down a $1.7 million house through improperly stored oily rags. That agent still refers people. They’re just careful about it now.

Which policy actually responds

For a licensed agent, a claim that your professional advice caused a client harm is an errors and omissions matter, sometimes called professional liability. It is not what a general liability policy is built for, since GL is aimed at bodily injury and property damage arising out of your own operations. Plenty of agents assume their GL policy has them covered here and find out otherwise at the worst possible time. Call your broker and ask the question in those words before you need the answer.

What should you do first when a referral goes wrong?

Work through these in order. The first two matter most, and the second one is time-sensitive in a way most people don’t realize.

1. Get out of the middle, and do it in writing. The instinct is to fix it by managing the contractor yourself. Resist that. Directing the work is exactly what converts an introduction into supervision. Tell your client, by email, that the agreement is between them and the contractor, and that you’re happy to help them think it through but can’t direct the job.
2. Check the licence right now. Look the contractor up at the Registrar of Contractors and screenshot what you find: status, classification, and the name on the licence. If they’re unlicensed, or licensed for a class of work that doesn’t cover this job, your client’s situation is materially different and they need to know today. Our guide on how to check an Arizona contractor walks through the lookup.
3. Tell your client about the two-year clock. Under A.R.S. 32-1162, a written complaint to the ROC has to be filed within two years after the project is completed, or for new home construction, within two years after the earlier of close of escrow or actual occupancy. Miss it and the ROC route closes, which also closes the Recovery Fund.
4. Write down what you actually said. Not a reconstruction six months later. Today, while you remember it: the date, the wording, whether you gave one name or several, whether you disclosed anything. Contemporaneous notes are worth more than memory.
5. Loop in your broker early. Most E&O policies have notice requirements, and “I thought it would blow over” is not a good reason to have waited. Early notice costs you nothing.
6. Take them off your list, and tell the client you did. It is the one piece of repair work fully within your control, and it’s the thing clients actually remember.

What the Recovery Fund covers, and what it doesn’t

Arizona keeps a Residential Contractors’ Recovery Fund for homeowners a licensed residential contractor has left in the lurch. The maximum award is $30,000 per residence, with a $200,000 aggregate cap per contractor licence, after which no further claims against that licence are paid. It covers actual damages, meaning the reasonable cost of finishing the contract and repairing defective work, minus whatever of the contract price is still unpaid. If a deposit was taken and no work was done, the claim is the deposit plus ten percent annual interest, still capped at $30,000. Anything recovered elsewhere gets deducted.

The condition that matters for your purposes: the fund applies to licensed residential contractors. Recommend someone unlicensed and your client isn’t just dealing with bad work, they’ve lost the state’s backstop entirely. That is why the licence check is the one step you should never skip.

Does giving three names actually protect you?

Partly. It defends against one specific accusation, that you steered the client to a particular contractor, and that’s a real accusation worth defending against. It’s why the advice is so widespread. In agent forums it comes up as received wisdom, usually phrased as give two or three, never one, or you can end up in a lawsuit.

But look at what the three-name rule does and doesn’t do. It doesn’t help at all if one of the three is unlicensed, since that’s the exposure that actually bites. It doesn’t help if you’ve never checked any of them, in which case you’ve handed over three unknowns instead of one. And it quietly moves the vetting job back onto a client who came to you because they don’t know how to vet a contractor. They wanted a name they could trust. You gave them homework.

Three unchecked names spread risk without reducing it. One name you’ve verified is licensed, in the right classification, is a stronger position than three you haven’t. Do both if you like: check them, then offer the client a choice. The protective step is the checking.

What should you check before you give out a name again?

This takes a few minutes per contractor and you only do it once per vendor, not once per client. Keep the results somewhere you can find them.

On the insurance line, be careful about what you claim. Confirming a certificate is current is worth doing. Saying to a client that a contractor is verified insured is a claim you are then responsible for, and coverage can lapse the week after you checked. It is safer, and more accurate, to say the contractor told you they carry general liability coverage and that the client should confirm it before work begins.

Why do you never hear how the referral turned out?

This one has nothing to do with liability, and it quietly causes most of the damage. You send a contractor work for years and hear nothing back. In one agent thread, someone who sends a lot of work out summed it up by noting they’d never received so much as a Christmas card from the contractors they recommend.

That’s not really about a gift. It’s about being outside the loop on something you put your name to. You don’t hear that the crew showed up late, or that the quote doubled, or that the job was excellent. You find out months later, from the client, usually only when it went badly enough for them to bring it up.

Which means your vendor list is being maintained on a delay, using only your worst outcomes. In that same discussion, several agents described the endpoint: one said that of five general contractors they’d worked with, every one eventually burned a client, and they stopped referring GCs altogether. Another said they no longer recommend anyone specific. The failure mode here is not a bad review. It is people who used to be a reliable source of good work for good contractors withdrawing from the market completely.

Is it legal to get paid for referring a contractor in Arizona?

For ordinary home services, generally yes. RESPA Section 8 governs settlement services tied to a federally related mortgage loan, and an HVAC replacement or a roof repair after closing isn’t that. The rules that actually apply are disclosure and keeping the referral separate from any real-estate transaction. Property managers should also keep referral income distinct from their licensed management duties. We wrote the long version, with the statutes cited so you can check them yourself, in Is it legal to get paid for referring a contractor?

Worth naming plainly: home inspectors are a different case. InterNACHI’s ethics rules and various state regulations effectively bar them from taking contractor referral fees, because of the conflict between flagging a defect and profiting from its repair.

If you take a fee, does your client end up paying more?

This is the objection that stops most people, and it deserves a straight answer rather than a dodge. In agent discussions about contractor referrals, the ethical version of it shows up almost every time: a contractor willing to pay you for referrals will recoup that money somewhere, and the somewhere is probably your client. So refer people because they’re good, not because they’re paying you.

That’s a serious argument and it’s right about some arrangements. The answer turns on when the fee is charged.

A per-lead fee is an advertising cost. The contractor pays it whether or not the job happens, on leads that go nowhere as often as not, so it has to be recovered across all the quotes they write, including yours. That cost genuinely does end up in pricing. A fee owed only when a job completes works differently: it replaces marketing spend the contractor was already making to find that same customer, and it costs them nothing on the jobs that never happen.

You don’t have to take anyone’s word on this, including ours. Three questions settle it for any referral program:

• Who pays the fee, and at what moment? Up front, per lead, or only after a job is finished and paid?
• Is the homeowner charged anything for the introduction? If the answer isn’t a flat no, stop there.
• Is the referral exclusive? If your client’s information is sold to several contractors, you have handed them a week of phone calls, which is its own kind of reputational damage. We covered that in why one quote request turns into a week of phone calls.

For what it’s worth, on a $10,000 job at an illustrative 10% success fee, the fee is about $1,000 and the partner’s half is about $500. That is an illustration of the structure, not a quote. The real rate is set with each Pro during the beta.

What does a lower-risk referral look like?

Here are the three ways this normally gets handled, compared on the things that actually matter when it goes wrong.

A note on that middle column, since it’s where a lot of property managers live. Marking up a contractor’s invoice is common and, when it’s disclosed in the management agreement, entirely legitimate. It does carry an incentive most owners notice eventually: a percentage of the invoice pays more when the repair costs more. Contractors have raised the sharper version of this publicly, describing management companies editing line items on their bids before showing owners, and the trade is genuinely split on where normal coordination fees end and misrepresentation begins. A fee tied to a job completing, disclosed, doesn’t have that shape.

The bottom line

Giving someone a name isn’t a warranty, and the fear that it might be keeps a lot of good people from helping their clients at all. The exposure is narrower than it feels: it’s concentrated in licensing, in directing the work, in promises you didn’t need to make, and in interests you didn’t disclose. Four things, all of them controllable.

The licence check is two minutes and it does more for your client than any disclaimer. Keep your wording consistent. Ask how it went. And if you’re one of the people who stopped referring contractors after getting burned, that’s an understandable place to land, but your clients still need someone, and they’re now finding that someone through a search ad.

Affiliate Labs is building the vetted, Phoenix-only version of this: ROC licence verified before a Pro is admitted, one Pro per job so your client isn’t resold to five companies, and the referral tracked so you actually find out what happened. If you want to see how partners are paid, that’s the property manager’s guide to contractor referral income.

Sources

• A.R.S. § 32-1162 — two-year deadline for filing a written complaint with the Arizona Registrar of Contractors.
• A.R.S. § 32-1132.01 — Residential Contractors’ Recovery Fund: actual damages, $30,000 per-residence limit, deposit and interest rules, offsets.
• A.R.S. § 32-1132 — $200,000 aggregate cap per residential contractor licence.
• Arizona Registrar of Contractors — licence lookup, complaint filing, and the unlicensed-violator list.
• Arizona Attorney General, Consumer Protection — consumer complaints and alerts on home construction and after-storm repair fraud.
• Agent and contractor accounts referenced above are public discussion threads, linked inline at r/realtors and r/Contractor. They are individual accounts, not survey data.