Many decisions and actions by REALTOR® associations have significant legal and regulatory implications. Therefore, new directors must understand the importance of risk management, and how their actions could unwittingly cause harm to the association.

As in Business Operations, fiduciary duties (loyalty, obedience, and care) play a role here as well. So do antitrust and confidentiality policies, as well as conflict of interest policies and human resources policies (including harassment).

An important component of risk reduction is providing for appropriate insurance coverage for the association. This includes both the NAR-provided Professional Liability Insurance coverage, which offers coverage only if the association complies with all applicable NAR mandatory policies, as well as obtaining general liability insurance to cover claims that might arise out of ordinary business operations.

Association Risks

Here are the twelve most common risks facing associations.

  1. IRS Letter of Determination – Missing, lost from the files, uncertain how to retrieve it when requested.
  2. Corporate Filings – Late or no annual filing with the state to update directors’ names and protect the corporate name.
  3. Sales Tax – Either selling items and not collecting sales tax, collecting sales tax and not remitting, or qualifying for sales tax exemption but not applying or renewing.
  4. Minutes – They read more like a newsletter than an official record of a meeting.
  5. Credit Card Reimbursement – Lack of policy for either staff or leadership in what it may be used for, personal usage, and submission of receipts on a timely basis.
  6. Voting on Members – Discussions at the board table as to the merits (or faults) of new members.
  7. Benefits Endorsement – Failure to do due diligence to justify how one vendor program/service is better than another. Maintaining those records as a defense.
  8. Staff Salaries – Board members asking what the staff makes, discussing it and making suggestions as to staff salaries other than what is indicated in a budget.
  9. Federal Tax Return – No understanding by front-line staff that a request for a 990 must be fulfilled without question.
  10. Micro Management – Board involvement in administrative duties, transferring liabilities from the CEO to the board of directors.
  11. Directors and Officers Liability Insurance – Delaying purchase because of a lack of need or lack of funds.
  12. Annual Audit – No audit because it’s too expensive.