In recent years, multiple states including Ohio, Illinois, and Michigan have passed legislation to regulate activities related to the practice of real estate wholesaling. Currently, the Maryland State Legislature is considering Maryland House Bill 0301, a piece of legislation that aims to place limits on who can participate in wholesaling, and how often they may do so. To some, this is a welcome change that has the potential to protect homeowners and benefit licensed real estate businesses. To others, this may seem like a government overreach to regulate a niche within the real estate industry that people have been making their livelihoods from for several years.
Regardless of which camp you fall into, Maryland HB0301 is most definitely going to have an effect on real estate businesses and professionals, assuming that it will pass and be signed into law (more on that below). While it’s difficult to predict how exactly pending legislation might impact business before it passes, the language of the proposed bill gives us some insight into what the State Legislature is hoping to accomplish by passing it.
Maryland HB0301 is Taking Aim at Unlicensed Wholesalers
The Bill Summary for Maryland HB0301 makes it very clear that the proposed legislation seeks to alter the definition of “provide real estate brokerage services” to include the practice of real estate wholesaling. Under the proposed bill, anyone engaging in real estate wholesaling will be required to be licensed as a real estate broker, associate real estate broker, or real estate salesperson. Anyone who is not licensed will be limited to completing no more than 2 of these transactions within a 12-month period, which makes it extremely difficult for any unlicensed wholesalers to make a living off of this practice.
While this does not make wholesaling illegal by any means, it certainly provides a heavier barrier to entry than what currently exists, and seeks to place relatively heavy regulation on a niche of the industry that has previously been likened to the Wild West. While some believe that Maryland Realtors are behind this legislation, the reality is that this bill was brought on behalf of the Maryland Real Estate Commission (MREC), which has been receiving complaints about wholesalers for years but does not have the authority to take action against unlicensed wholesalers.
Why Does MREC Want to Place Limits on Wholesaling?
Long story short, the practice of real estate wholesaling has led to some homeowners falling prey to individuals who recognize when a property is in distress and swoop in to offer their assistance in selling their home to avoid foreclosure or other financial catastrophe. This often leads to those sellers taking less money for their property than they could get on the open market by working directly with a realtor, or even selling the home on their own.
Under current law, the Maryland Real Estate Commission (MREC) only has the power to discipline, fine, and recommend prosecution against licensed real estate professionals. For the unlicensed, MREC has no jurisdiction and must instead forward complaints to the Attorney General’s office, which is already limited in the resources that it has available to pursue such complaints, often leaving those complaints unanswered and with no legal recourse for home sellers who have been taken advantage of in the wholesaling process.
By requiring these brokers to obtain a real estate license, the burden of enforcement is shifted off of the Attorney General’s office and on to MREC. This makes a lot of sense, considering that one of MREC’s goals is to protect the public in matters regarding real estate.
What Should Wholesalers Do if Maryland HB0301 Passes?
Based on sentiments expressed by the State Legislature, this bill seems as though it’s very likely to pass through the House and become an active state law in October of 2023. For any licensed real estate professionals, this doesn’t pose any issue as nothing will change for them. However, those who currently engage in the practice of real estate wholesaling will be forced to either comply with the law, face steep fines for not complying, or find a new business to get into entirely.
On that note, wholesalers who are operating ethically would be putting themselves in the best possible position by getting a real estate license in order to comply with this new law. For anyone operating unethically, consumers will now be empowered by the law to seek recourse, ensuring that any bad actors are extremely likely to face consequences from MREC and the State of Maryland.
Will This Have Any Ramifications for Investors?
Ultimately, we view this pending legislation as a net positive for both the public and the real estate industry in Baltimore. It will be easy to tell both for sellers and buyers whether anyone brokering a transaction is acting in accordance with the law, simply by asking for a license number. This isn’t expected to negatively impact the industry in any tangible way, but instead will benefit the vast majority of individuals who seek to participate in the market lawfully and ethically. If anything, this should make doing business much easier.