When a North Carolina builder builds a spec house on land he owns and sells the house and land together, does the project 'value' for general-contractor licensing purposes include the land?

Plain-English summary

Daniel McComas asked Chief Deputy AG Andrew Vanore a narrow valuation question with practical consequences for spec builders. G.S. § 87-10(a) defines three levels of general-contractor licensure (unlimited, intermediate, limited), each with a dollar cap on the value of any single project the licensee can undertake. As of 1997 the caps were:

• Unlimited license: no value cap
• Intermediate license: up to $500,000 per project
• Limited license: up to $250,000 per project

The trigger for needing any GC license at all under § 87-1 was a project costing $30,000 or more.

McComas asked: when a contractor builds a spec house on land he himself owns, then sells the completed home plus the land to the buyer, is the "value" for licensing purposes the total transaction price (including land) or just the cost of constructing the building?

Vanore concluded value means only the cost of the building, not the cost of the land.

The reasoning. Article 1 of Chapter 87 (the GC licensing statutes) exists to protect the public from incompetent builders. The NC Supreme Court said this in Builder Supply v. Midyette, 274 N.C. 264, 270 (1968), and reinforced it in Sample v. Morgan, 311 N.C. 717, 722 (1984). The licensing tiers in § 87-10(a) reflect a legislative judgment that bigger structures require greater building expertise. That judgment is about construction skill, not real estate value.

The cost of the land is irrelevant to the contractor's expertise. A builder erecting a $200,000 house on a $50,000 lot does the same construction work whether the lot is in a low-value rural county or a high-value urban one. The licensing scheme should care about the construction effort, not the lot value, so the "value" for license-tier purposes should track the construction cost only.

This conclusion practically meant that a builder with a limited license could build a $240,000 house and sell it with $100,000 worth of land (total $340,000) without violating the licensing tier limit, because the $250,000 cap measured against the building cost.

Currency note

This opinion was issued in 1997. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The dollar thresholds in G.S. § 87-10(a) and § 87-1 have been amended since 1997 (the GC license-required threshold has been raised; tier caps have been adjusted). Anyone analyzing a current licensing-tier question should check the current text of these statutes and the General Contractors Licensing Board's current rules and guidance, not the 1997 figures.

Background and statutory framework

North Carolina has regulated general contractors since 1925, through what is now Article 1 of Chapter 87 of the General Statutes. The licensing scheme has three parts that work together. § 87-1 defines who counts as a "general contractor" and sets the threshold (then $30,000) at which a license is required. § 87-10 sets the three tiers of license, each with a value cap. § 87-13 (and others) provide the enforcement mechanisms.

The tier structure reflects a legislative trade-off. Requiring an unlimited license for every project would have priced small builders out of the market. Allowing all licensees to bid on any size project would have created the kind of in-over-their-head failures the licensing scheme exists to prevent. The tiers let the General Assembly calibrate the complexity-to-skill match.

When a builder is also the seller (speculative or "spec" construction), the question of what to count as project value becomes practical. The opinion's answer (count the construction cost only) keeps the licensing inquiry focused on what the licensing scheme actually regulates: building competence. Whether the builder also owns the land or is working under a separate construction contract for an owner does not change the construction work.

The opinion's reasoning is short because the two Supreme Court cases (Midyette and Sample) supply the policy frame directly. Both emphasize that the licensing scheme is about protecting the public from incompetent builders, which is a construction-expertise question.

Common questions

Did this opinion apply to homes built for an owner under a construction contract?

The opinion is framed around spec construction where the builder owns the land. For a builder constructing under a normal construction contract for an owner, the "value" question is simpler: the project value is the contract price for construction, which does not include the land (the owner already owns the land). The spec-construction case raised the harder question because the sale price was a combined construction-and-land number.

How did this affect builders who also did land development?

A builder who developed lots and built houses for sale (a vertically integrated home builder) could allocate the sale price between land and structure for licensing purposes. The structure cost determined the required license tier, not the combined sale price. This let builders work in higher-value markets without requiring unlimited licenses for every project.

Could the value be set artificially low to evade the tier?

The opinion did not address fraud or sham allocations. A builder who claimed an unrealistically low construction cost to stay within a license tier could still face enforcement action under the GC Board's regulatory authority. The opinion's allocation rule assumes good-faith valuation of construction.

What about commercial construction?

The same analysis would apply. § 87-10(a)'s tier scheme is not building-type specific. A commercial builder building speculatively on owned land would still measure the "value" by construction cost only. The land value, whether the lot is industrial, retail, or office, would not count toward the tier.

Did the opinion cite cases?

Two: Builder Supply v. Midyette, 274 N.C. 264 (1968), and Sample v. Morgan, 311 N.C. 717 (1984). Both established the public-protection purpose of the GC licensing scheme. Sample in particular discussed the differing expertise levels assumed by the three tiers in § 87-10(a) and made clear that the tiers track construction complexity.

Did this opinion bind the GC Licensing Board?

As an advisory opinion, it had persuasive force only. The GC Board could have taken a different position, but the AG's reading was consistent with the controlling case law and the licensing scheme's purpose. The Board's regulatory practice has typically followed similar reasoning.

Source

• Landing page: https://ncdoj.gov/opinions/determine-appropriate-level-of-license-to-be-issued-to-a-general-contractor/

Citations

• N.C.G.S. § 87-10(a)
• N.C.G.S. § 87-1
• Builder Supply v. Midyette, 274 N.C. 264 (1968)
• Sample v. Morgan, 311 N.C. 717 (1984)

Original opinion text

N.C.G.S. § 87-10(a) establishes three levels of licensure for a general contractor. The three levels are: (1) unlimited license; (2) intermediate license; and (3) limited license. "The holder of an unlimited license shall be entitled to act as a general contractor without restriction as to value of any single project; the holder of an intermediate license shall be entitled to act as a general contractor for any single project with a value of up to five hundred thousand dollars ($500,000); the holder of a limited license shall be entitled to act as a general contractor for any single project with a value of up to two hundred fifty thousand dollars ($250,000); . . . ." (Emphasis added) N.C.G.S. § 87-10(a).

As it is used in N.C.G.S. § 87-10(a), you ask our opinion on "the meaning of the term 'value' as it applies to speculative construction in which the general contractor owns the land upon which the home or other building is built and then sells both the structure and the land to the purchaser."

For reasons which follow, we conclude that the term "value" should be limited to the cost of the home or other building, and should not include the cost of the land.

Article 1 of Chapter 87 applies to "general contractors," and includes §§ 87-1 through 87-15.2. A "general contractor" is defined as "any person or firm or corporation who for a fixed price, commission, fee, or wage, undertakes to bid upon or to construct or who undertakes to superintend or manage, on his own behalf or for any person, firm, or corporation that is not licensed as a general contractor pursuant to this Article, the construction of any building, highway, public utilities, grading or any improvement or structure where the cost of the undertaking is thirty thousand dollars ($30,000) or more, or undertakes to erect a North Carolina labeled manufactured modular building meeting the North Carolina State Building Code . . . ." N.C.G.S. § 87-1.

In Builder Supply v. Midyette, 274 N.C. 264, 270 (1968), the North Carolina Supreme Court explained that

(t)he purpose of Article 1 of Chapter 87 of the General Statutes, which prohibits any contractor who has not passed an examination and secured a license as therein provided from undertaking to construct a building costing $20,000.00 [now $30,000.00] or more, is to protect the public from incompetent builders.

In Sample v. Morgan, 311 N.C. 717 (1984), the North Carolina Supreme Court discussed the purpose of N.C.G.S. § 87-10(a). "Clearly the statute contemplates a differing level of expertise for those applying for and receiving a license in the three enumerated categories. In enacting this statute, the legislature reasonably determined that as the cost of a structure increased, there would be additional demands of expertise and responsibilities from the contractor." (Emphasis added) Id. at 722.

It is clear, therefore, that the Legislature's focus when enacting N.C.G.S. § 87-10(a) was on the value of the home or other building to be built by the contractor, and not on the value of the land upon which the home or other building is built.

Should you have any further questions, please feel free to contact us.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General