The REALTOR®'s Dues Formula for Second Firms
Several associations of REALTORS® have asked for guidance in applying the REALTOR® dues formula in cases where members have started a second firm (other than a Limited Function Referral Office or LFRO) for the purpose of reducing the amount of association membership dues that would otherwise be payable.
This page provides a brief historical perspective and specific guidance.
At the 1972 Annual Convention, the National Association of REALTORS® Delegate Body approved what’s now commonly referred to as the “designated REALTOR® dues formula.” The formula was carefully crafted to ensure fairness by basing member dues on the number of individuals licensed with REALTORS® principals (known as “designated REALTORS®”), or licensed with brokers who are, in turn, themselves licensed with designated REALTORS® . The formula acknowledges that the benefits of REALTOR® membership at the local, state and national levels accrue not only to designated REALTORS® but to all licensees in REALTORS®’ firms as well.
All individuals licensed directly or indirectly with a designated REALTOR® are included in the “size formula” computation. An offsetting credit is given based on the number of non-principal licensees who hold REALTOR®, REALTOR-ASSOCIATE®, or Institute Affiliate membership in their own right.
This credit avoids duplication of payments by the designated REALTOR®, and then by the REALTOR® herself or himself, avoiding a situation where firms most committed to the REALTOR® organization pay dues possibly nearly double those paid by firms whose affiliated non-principal licensees choose not to hold membership.
NAR policy allows REALTORS® to affiliate themselves with licensees whose activities are exclusively limited to generating referrals through the use of Limited Function Referral Organizations (“LFROs”). Under the LFRO policy, REALTORS® can hold a direct or indirect ownership interest in an entity engaged exclusively in soliciting and/or referring clients and customers to the REALTOR®. Licensees in LFROs are not eligible for REALTOR membership, and they are not included in the designated REALTOR®’s “size formula” dues computation.
Some real estate professionals benefit from the contributions REALTORS® make to the industry and the public without participating in, or contributing to, the work of the REALTOR® organization. Where none of the principals of a real estate firm hold REALTOR® membership, none of the duties of membership, including adherence to the Code of Ethics or paying dues, apply. In the same light, none of the direct benefits of membership are available to licensees in nonmember firms. The only exception is where by law or by local choice, MLS participatory rights are available to nonmembers.
In some instances REALTORS® have tried to minimize the membership dues that would be otherwise payable by starting a second real estate brokerage company. These second companies are often comprised of licensees who choose not to assume the responsibilities of REALTOR® membership. Where no REALTOR® principal in the first firm is a principal in the second firm, the principals of the second firm are not subject to paying dues, or to any other membership duties since they are not REALTORS®. In cases where a REALTOR® is a principal in both firms, the REALTOR® principal is subject to the size formula dues with respect to all of the licensees in both firms.
Under NAR policy, a “principal” includes sole proprietors, partners in partnerships, officers and majority shareholders in corporations, and office and branch managers acting on behalf of a principal(s). NAR policy also requires that all principals in a firm hold membership if any one principal does. This policy recognizes that all of the leaders of the firm must be committed to the Code of Ethics, to professionalism, and the objectives of the REALTOR® organization generally, and acknowledges their responsibility and accountability to how their firm is operated.
In some cases the names of the second firm will be similar, or nearly identical, to the name of the REALTOR®’s firm. The two firms may share a common address or office space. Such factors, while potentially confusing, are not determinative of whether the licensees in the second firm are subject to inclusion in the dues payable. The determining factor is whether any of the principals in one firm are also principals in the second firm.
Even where the designated REALTOR® dues formula does not apply to the principals and licensees in a second firm, there can still be other issues and concerns.
- Nonmember firms, and the licensees affiliated with them are not entitled to use NAR’s registered membership marks.
- Similar or virtually identical names of different firms, especially those sharing addresses, office space, clerical or support staff, and/or websites, can be confusing or misleading to the public. Article 12 of the Code of Ethics obligates REALTORS® to “present a true picture in their advertising, marketing, and other representations.” While principals and licensees in true nonmember firms are not subject to the Code of Ethics, REALTORS® who use firm names to create the impression those two separate firms are actually one, or to otherwise confuse or mislead consumers, likely run afoul of Article 12.
- That said, there is no prohibition on REALTORS® sharing an address, office space, clerical or support staff, and/or websites with nonmember firms, provided there is no conflict with REALTORS®’ “true picture” obligation or other duties of membership.
Determine the facts before taking action
Where there are questions about the relationship between two firms, an association’s membership committee or board of directors should invite the REALTOR® principals to meet with the association to explain the relationship between the companies, if any. Where information is needed for the committee or for the board of directors to make a fair, informed decision, REALTORS® have a duty to cooperate in providing requested information.
The following resources are available on nar.realtor.