Is Wholesaling Illegal in Maryland?

18 Replies

I am new to real estate and have a question regarding wholesaling.  Is it legal in Maryland?  I cannot find a legal basis for it in light of the following:

"Except as otherwise provided in this title, a person may not provide, attempt to provide, or offer to provide real estate brokerage services unless licensed by the Commission as a real estate broker."  MD Code, Business Occupations & Professions, § 17-601.  

“Provide real estate brokerage services means to engage in any of the following activities: (1) for consideration, providing any of the following services for another person: (i) selling, buying, exchanging, or leasing any real estate; or (ii) collecting rent for the use of any real estate; (2) for consideration, assisting another person to locate or obtain for purchase or lease any residential real estate(3) engaging regularly in a business of dealing in real estate or leases or options on real estate(4) engaging in a business the primary purpose of which is promoting the sale of real estate through a listing in a publication issued primarily for the promotion of real estate sales; (5) engaging in a business that subdivides land that is located in any state and sells the divided lots; or (6) for consideration, serving as a consultant regarding any activity set forth in items (1) through (5) of this subsection."  MD Code, Business Occupations & Professions, § 17-101.

It sounds pretty cut-and-dry to me. . . . Am I missing something?

To me, the inclusion of the words “for another person” makes Maryland a rather easy jurisdiction to wholesale legally as long as you are marketing the contract interest rather than the property.

I have seen the statute used as a defense to paying a wholesaler a large fee. The case was settled before trial.

I took a wholesale class by Vena Jones-Cox and I really love the way she explains why wholesale is completely different from being a realtor (or anything using a brokerage service).  A real estate wholesaler do not sell properties, you are selling a contract and nothing more; a wholesaler business is fundamentally with contracts you dont buy or sell properties.  Ultimately you get the rights to sell the contract for a fee, that's all you are doing.  

@Jason D. Usually the legal definition of "Marketing the property" goes hand in hand with "what is marketing" and "how do you advertise something to be considered marketing". Most of the time the interpretation is "marketing with a listing service" and honestly to me that's just the legal way of saying "you can't put the property on the MLS" LOL. But going back to your question if you put pictures of a property, use language where is clear that you don't own the property (this is why many wholesalers specify that they are selling a contract agreement) and that you are only selling a contract and send it to a few email addresses it would be very difficult to prove in court that you are promoting a real estate sales. I'm not a lawyer and this is not legal advise, just my opinion and some of what I have seen.

@Tom Gimer "(1) for consideration, providing any of the following services for another person: (i) selling, buying, exchanging, or leasing any real estate."

How would you provide the service of selling without marketing?

@Jason D. Like I said, the definition of providing brokerage services (in Maryland) does not include the word “marketing” ... not sure why you are focused on that word. Focus on the statute.

Wholesalers who do things correctly around here don’t provide any services “for another person”. On their own account they work to control properties and then assign the contract interest for their own profit... or they actually close and then resell.

I have clients who find land, put it under contract, then when enough pieces of the puzzle are in place, sell the interests or the land to a developer. Are they brokers, entrepreneurs, neither, both, none of the above?

@Tom Gimer there are many states that disagree with you (including my state of florida) and are beginning to crack down on wholesalers for providing brokerage services without a license.

I'm not sure how you dont feel that a wholesaler is assisting in the buying and/or selling of real property but, as I've said from the beginning, it seems pretty cut and dry to me....

@Jason D. This is a Maryland question. Thanks for your Florida opinion. 

Precisely why when I took a BP survey last week I responded that the biggest problem to address on BP is questions from an unknown location (which imo should not be allowed) followed by a stream of answers from people located everywhere.

Sure it makes for interesting reading but it’s not particularly helpful. 

Originally posted by @Tom Gimer :

@Jason D. This is a Maryland question. Thanks for your Florida opinion. 

Precisely why when I took a BP survey last week I responded that the biggest problem to address on BP is questions from an unknown location (which imo should not be allowed) followed by a stream of answers from people located everywhere.

Sure it makes for interesting reading but it’s not particularly helpful. 

 If only they had local forums where you could post something state specific and only attract local responses.

I should suggest that in my survey....

Originally posted by @Jason D. :
Originally posted by @Tom Gimer:

@Jason D. This is a Maryland question. Thanks for your Florida opinion. 

Precisely why when I took a BP survey last week I responded that the biggest problem to address on BP is questions from an unknown location (which imo should not be allowed) followed by a stream of answers from people located everywhere.

Sure it makes for interesting reading but it’s not particularly helpful. 

 If only they had local forums where you could post something state specific and only attract local responses.

I should suggest that in my survey....

We do have local forums on BP here that are state specific and even area specific. For example, we have a CA forum and inside that, the Los Angeles forum for local discussions.

As to the question, I am not from MD so my input may not be viable but in dealing with these issues across the country, most states have rules and regulations now that specifically disallow a party to lock up a contract with a seller, market that contract which always includes the specifics of the property (otherwise how would the potential buyers know what they are buying) and then "market" that contract and property via Craig's list, emails, their websites, this website, etc which is "publicly marketing" to find a buyer. This constitutes brokering without a license in most states including CA. I do not know MD law but I find it hard to believe they would not have some rule against that as well.

Here is the real issue though no matter what state you or the property are in: Wholesaling in of itself is NOT illegal if done properly and legally, i.e. if you lock up a property, close on it and resell it, that is legal. Or you can lock it up under an entity having your buyer in place in advance and that buyer is added to the entity. Or similar process using a trust whereby you lock up the property, name yourself the trustee of the trust and add your buyer at the end as the beneficiary. Upon closing, the buyer fires you as trustee and names a new trustee. In other words, there are many ways to do it legally, the problem is, most do it illegally.

Try reading this thread which is the longest running (8 years and counting) active and most voted thread on Biggerpockets: https://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-

It may take you a week to read every post in the thread but it is well worth it.

If you post with Maryland in the title in a general forum, that doesn’t somehow transform the thread into a discussion of general principles. 

Good wholesalers don’t advertise on craigslist... they pick up the phone and call their buyers. If you are advertising online with “do not contact the occupant” then you are a rank amateur who is not long for the business.

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