Maryland builders have an extra set of regulations to follow, with the state's new sales agent licensing law that went into effect on Monday, Oct. 1.
The law requires that a builder's sales associates be licensed real estate agents. That in and of itself isn't unusual; several states have a similar requirement. What makes the Maryland law unique is that the state's licensing law says that sales agents must be affiliated with licensed real estate brokers, not the home builder.
Maryland builders already operate under a strict, consumer-friendly builder registration law, says Tom Ballentine, director of policy for government affairs for the Home Builders Association of Maryland. With the new law, sales agents will be regulated by the state's Real Estate Commission. Agents may receive compensation for their sales only from the broker with whom they are affiliated, according to an FAQ from the Maryland State Division of Occupational and Professional Licensing.
"The simple intent was to require the licensing of sales agents; the unintended impact was the broker rules came into play," Ballentine says. "We discussed that at the legislative level and it didn't penetrate."
With the bill approved in the final hours of the legislative term in April, a licensing process that includes 60 classroom hours and sitting for an exam, and an Oct. 1 effective date, many builders were scrambling to get their sales agents licensed in time, Ballentine says.
Builders can set up their own real estate brokerage, but "there are a number of requirements in the licensing law regarding the way a real estate brokerage must operate that would make it difficult to include the brokerage within an existing home building company," according to the state's FAQ on the topic. Most notably, brokerage companies have to employ a licensed real estate broker, who supervises and pays the agents.
Rockville, Md.-based Mid-Atlantic Builders handled its compliance by working with an outside broker to set up another entity while three of its employees work on getting their broker's licenses. "This is short term," says Stephen Paul, executive vice president of Mid-Atlantic Builders and a board member of Maryland-National Capital Building Industry Association. "In the long term, we'll have a broker of record in-house. When we do that, this gentleman will step aside. Small builders, that's what we're having to do. These are situations where people pass bills and don't think about the full consequences."
The HBA of Maryland has been talking to the state attorney general's office for some guidance on the issue, Ballentine says, "that allows a building company to create a brokerage of their own and prevents separation of these long-time employees from their companies, retirement benefits, health insurance, and other kinds of benefits."
That's the approach that Red Bank, N.J.-based Hovnanian Enterprises took to comply with the new regulation, says vice president and associate general counsel Steve Pelz. The company has an employee who already had a broker's license, so Hovnanian created a brokerage firm, K. Hovnanian Homes, under his license.
Still, it means that construction and warranty are governed by one set of laws and sales must answer to another. "This is the prime example of the law of unintended consequences," Pelz says. "We have two laws to comply with. They don't necessarily go hand in glove. ...We don't operate as a brokerage. Our operations are completely different. We're a builder. People know us as a builder."
Until builders can get all their sales associates licensed, Ballentine says, there could be some "new faces behind the desk." But the much bigger issue will be higher prices required to cover the broker's commission. "Brokers won't work for free," Ballentine says. "Just what we need right now, higher transactional costs. It's totally unnecessary."
Mid-Atlantic's Paul sees it from a somewhat different perspective. By having a brokerage, his company could now offer prospective buyers a low-cost method of selling their existing homes instead of paying a listing agent a 6 percent commission.
"We didn't ask for this," Paul says. "We were happy doing what we did. If (the state is) going to require us to create agencies for brokerage and the market is hard right now, it makes sense for us to extend our services to the departure home. If we can make it easier for (buyers) to have less of a cash strap, let's do that."
For more information on the Maryland regulation requiring builders to use licensed sales agents, visit"
For information on the Home Builders Association of Maryland, visit http://www.homebuilders.org/
For details on the Maryland-National Capital Building Industry Association, visit www.mncbia.org/
For more information on Mid-Atlantic Builders, visit www.midatlanticbuilders.com
For details on K. Hovnanian Homes, visit www.khov.com