NAR Hit w/ Another Blow After Shocking “Donation” Discovery

Debra:
That’s the million dollar question, or as I would say the 1.5 million member question is any of this illegal.

Dave:
The National Association of Realtors or a R has been under intense scrutiny over the course of the last few years between a lawsuit around commission rates and allegations of sexual harassment. Now, new investigative reporting from the New York Times reveals some details about NA’s finances. And this new story has made me curious about what all of this news means for NAR. It’s the biggest trade organization in our industry, and they’re going through a lot of change and a lot of scrutiny. Is a R doing anything illegal? Is this impacting investors, agents and home buyers here today to illuminate how NAR spending has shaped the housing market and what this new news means for the future of NAR is the reporter behind that story. Deborah Cayman of the New York Times.
Hey everyone, it’s Dave. Welcome to On the Market. We are bringing this conversation to you just a few days after the story broke. Now it’s important to note that at this point, because it’s so new, NAR has not issued a formal response. We don’t know if they will, but they haven’t yet to this point. And they are though, impacts our industry in all sorts of ways. And so we at on the market want to bring you the facts that have emerged so far so you can stay on top of the latest news. So with that, let’s bring on Deborah Kaman. Deborah, welcome back to the show. Thank you for being here.

Debra:
Thank you, Dave. It’s always so nice to be here chatting with you.

Dave:
Yeah, if you all don’t remember, Deborah was last here back in March talking about the NAR Commission’s lawsuit settlement. Maybe before we jump into the more breaking news right now, can you just give us a summary of sort of the last year, year and a half that NAR has had? Because they’ve been in the news quite a lot.

Debra:
They have been in the news quite a lot. They’ve had, I said this last year, but they’ve had a tough year this year as well. But the big story with NAR this year happened in March when you and I last spoke when they accepted a settlement agreement after being sued in a lawsuit that concluded in October of the previous year over commissions. And the crux of the lawsuit was a handful of home sellers in Missouri accused NAR and a number of brokerages of price fixing and essentially artificially inflating the cost of real estate commissions. And they lost that lawsuit and the final verdict was 1.8 billion with a B. And also those damages could potentially have been tripled because it was an antitrust suit. So they were looking at a really serious bill. So rather than pay that they opted to settle in March. And when they settled, they also agreed to a number of very significant rule changes that really have altered the landscape of housing in the US in one of the most significant ways we’ve seen in a really long time.

Dave:
Great summary. Thank you. And if anyone wants to catch up on that story, we have put out, I think two or three different episodes on the implications of the NAR lawsuit. So you can definitely go check that out. When we talk about NAR though as well, I think it was maybe in 2023, the prior year, there was some turmoil with their leadership, right? Yes. Someone was accused of, what were they accused of? Again?

Debra:
The president of NAR Kenny Parcell was accused of sexual harassment. This was a story that we broke in the New York Times in August of 2023. And many women came forward alleging years of sexual harassment, not just from Kenny Parcell, also from other leaders, but the majority of the allegations were against him. And in the wake of that lawsuit, he did resign from his position and that set off a lot of turmoil at the top of NAR. So in the course of a year, there’s been five big changes at the top and there’s also been other staff who have left as well.

Dave:
Wow. So that has been a tumultuous 18 months or so for NAR what brings them back into the news for a whole new thing now?

Debra:
Well, I think it’s my reporting think it’s what we’re here to talk about.

Dave:
Yeah. So tell us, we’re excited to have you here, but tell us what the story is that you’ve been following.

Debra:
Well, all these threats connect and one of the things that I decided I wanted to do last year after the settlement agreement, when it really became a topic of conversation about how big NAR is and how much money they had, I wanted to look deeper at their finances because NAR is a trade organization, but they’re also much more than that. They also have a political action committee, which in terms of lobbying dollars is the largest lobbying body in Washington. So when you talk about the housing lobby in the United States in the housing market, you cannot leave NAR out of that conversation. And then also NAR is a national organization, but they have subsidiaries at the state level and the city level. There are more than 1400 realtor associations that are subsidiaries of NAR that are connected to them. And they each have their own budgets and their own revenue, and also many of them have their own lobbying entities as well.
So it’s this web of influence and it had not really been interrogated in a way that I thought was worthy of an organization that is so big and so powerful and holds so much control over the housing industry. So I started examining their finances and that work turned into several different threads. So we’ve put out at the New York Times now two stories. There may be more looking at different ways that their finances play out and impact both real estate agents on the ground and homeowners. And a lot of the thesis of these stories is about a lack of transparency and the way they spend their money and a lack of awareness among the real estate agents who pay the dues that are the bulk of NE’s revenue about how those dollars are spent and where they go.

Dave:
Well, I’m excited to learn more about your reporting. I have a very simplistic question. I’m just naive about this. You said that there are trade organization, they’re also a lobbying group. What is the definition of a trade organization and what is its intended purpose?

Debra:
That is a great question. So the trade organization, they’re a 5 0 1 C six, so they’re a nonprofit organization and it essentially just means that they are funded by membership dues. Their money comes from the fact that people pay to be a part of them. And because of that, because of the way tax law is written, what they do with that money has to serve those members who pay the dues. That’s the simplest way. So if you’re paying to be a member, they have to work for you, you’re the boss in a sense.

Dave:
And then the lobbying group can be part of that or is it separate?

Debra:
They are separate. They are connected, and there’s a lot of interweaving and a lot of overlap. But a lobbying group is specifically designed as an entity that puts money towards political causes. And NA’s motto has always been that they are bipartisan, they are not Republican, they’re not democratic. Their goal with their lobbying arm is to put money towards causes that promote home ownership, real estate agents, the real estate industry and the causes that the people who are part of the trade organization would believe in and would want advocated for in Washington. But in terms of how the organizations are designed, how they are categorized with the tax code, they are separate what they’re supposed to be.

Dave:
Makes sense. But it stands to reason that a lot of the membership dues that real estate agents pay wind up in the lobbying arm because you said that’s where their revenue comes from. So I’d imagine that’s how they’re funding their lobbying activities

Debra:
Sort of not exactly. It’s a little more complicated than that, and I’m happy to break it down with you.

Dave:
Tell

Debra:
Me. So 87% of the revenue for NAR, the trade organization comes from membership dues. In addition, every year members will get a bill saying, these are what your dues are. And they actually have three parts because NAR has this three-way agreement where if you’re a member of NAR, you also have to be a member of your state real estate association and your local real estate association. It’s required. So you get a bill for three different trade organizations. And on that bill, there’s also a donation box. It’s usually, I believe $45, which is a donation to the Political action committee.
That donation is technically voluntary. It is not required to be a member of NAR. I will say that I’ve spoken to many real estate agents who say that that bill comes with the box for the donation. So sometimes you don’t even realize that you’re paying the donation if you don’t want to pay it. You have to go in there and manually uncheck it in many cases. And a R even has a campaign called Don’t Uncheck the Box, which is encouraging real estate agents to pay an additional $45 or whatever it is each year to their political action committee as a donation. In addition, a lot of the conversation at NAR is about the impact of their advocacy work. A R talks a lot about how they are so powerful in Washington and they are so effective and they’ve lobbied for things that help real estate agents. And they’re able to do that through membership dues and donations. And you are very heavily encouraged to donate. A R even has a special conference each year for people who reach a certain tier of donations called President Circle, and it’s hard to rise through the rakes at NAR if you’re not also active with the political side.

Dave:
Got

Debra:
It. They’re connected.

Dave:
Thank you for that additional context of just how this organization is set up. What has your reporting over the last year or so uncovered about what they’re doing with their lobbying activities?

Debra:
So my reporting has actually not been specifically about their lobbying activities themselves, what it’s actually been about how money at the trade organization is being used potentially for political causes that members may not support. That was the most recent article that came out yesterday. We’re recording this on Tuesday. The article was published on Monday. So one of the things that I started looking into when I was just exploring in general, the finances of NAR is an affiliate organization that a R created in 2020 called the American Property Owners Alliance. So they are also a nonprofit, just like NAR, although they’re categorized slightly differently. A R is a 5 0 1 C six, they’re a trade organization. And the American Property Owners Alliance is a 5 0 1 C four. So that means they are a nonprofit whose goal is to promote social welfare or the common good. There’s all these different classifications, 5 0 1 C3 C four C six, and it can feel like a bunch of mumbo jumbo, but it’s important just to understand how they’re categorized. So the American Property Owners Alliance is a 5 0 1 C four. They were created by nar. There was a vote that approved them, and their entire revenue comes every year from a grant that a R gives them.
So if you’re looking at the dollars at NAR as a huge pot, you have 1.5 million members who in many cases have no choice. They have to be a member of a R if they want to sell real estate in the US because NAR controls access to a lot of the databases where homes are bought and sold. So they’re paying dues so they can do their jobs. Those dues make up the bulk of their revenue. And then from that pot of revenue, a R is writing a check every year to this affiliate organization, the American Property Owners Alliance. And I was really curious how they’re spending their money because many people appeared not to have heard of them, and a lot of real estate agents I talked to had no idea what they were or what they did. And I started looking into the grants that they’re giving.
And NAR talks a lot about how it is very bipartisan, but the grant giving activity of the American Property Owners Alliance points to a significantly partisan slant. And it is one that is to the right. The vast majority of the grants that they are giving are to organizations that are aligned with Republicans and right-wing causes. And some of them are very hot button culture war issues that some realistic agents would probably not agree with. They have to do with abortion. They have to do with critical race theory, they have to do with school choice. And I found it striking that so much money from membership dues is eventually ending up going towards causes that many agents probably would not want their dues going to, or at the very least would want to know that it’s happening. So that’s why I started reporting that story.

Dave:
So just so I make sure I understand, I think I do, but there’s NIR, it’s a trade organization. Before the creation of the American Property Owners Alliance, their public political arm was through this lobbying part that was funded by this donation, this semi optional donation. But this is a development in that NAR has created a new 5 0 1 C four and that they are making political contributions now through money that is from agents dues and that there’s just not a lot of transparency in how this is being spent. And perhaps some agents wouldn’t be aligned with how their dues are being spent on what seems like maybe issues that are less related to real estate.

Debra:
I mean, that’s perfectly phrased, Dave. That’s great.

Dave:
Okay, well, I got there. It took me a little while, but

Debra:
No, you did great. That’s actually very impressive. It is extremely complicated, but I believe it is meant to be complicated. So first of all, I want to just correct you on one small point because it’s important to say these donations that the American Property Owners Alliance are making, they will come back to you and say, these are not political donations, because they’re not contributing directly to candidates and they’re not contributing directly to political action committees. They are contributing to other 5 0 1 C four s. But this is where it gets really tricky, especially in the way that American fundraising dollars are spent. They are contributing to 5 0 1 c four s that were set up by political groups to filter money to them. So one of the primary recipients of their dollars is a 5 0 1 C four called One Nation. They’re a nonprofit, but One Nation is a subsidiary organization of the largest pack for Republicans.
They are known as the partner to them. And if you go in and look at fundraising dollars, you can see that money is going through them to Republican candidates and Republican causes. They also do give significantly less, but they do still give money to the almost identical organization on the Democratic side. So these are dollars that rather than going directly to political action committees, they’re stopping first at nonprofits and then money is fungible. So there’s no way to know exactly where it’s going, but we know that these 5 0 1 C fours are immediately connected to these pacs and they are a key part of the dollars that flow into them. So it looks as if NAR has created a nonprofit that’s giving money to other nonprofits in order to get more money to political organizations in a way that is less transparent. That is how it appears.

Dave:
Alright, we’ve got to take a short break, but stick with us for more details on NA’s financials. Welcome back to On the Market. I’m here with reporter Debra Kamin talking about her latest reporting on the National Association of Realtors. So it clearly there’s a lot of layers here and perhaps intentional, but is any of this actually illegal or is it just sort of hidden from member views? And that’s the story.

Debra:
That’s the million dollar question or as I would say the 1.5 million member question is any of this illegal
NAR and the American Property Owners Alliance insists that everything they do is within the tax code and the tax code makes it so that it’s not illegal for a nonprofit to give money to another nonprofit and it allows 5 0 1 c fours to participate in some lobbying activity even if it’s limited. I will say that illegal and unethical are not the same thing. And I’ll also say that I spoke to several attorneys who specialize in nonprofit funding and I went over the grants with them. I told them what I had found and they all said that this is something that raises flags and we would not surprise them if the IRS wanted to look more closely at it.

Dave:
And I know this story is just developing and thank you for sharing it with us when it’s so new. Has NAR said anything about this American Property Owners Alliance or what it’s intended to do or why they’ve set up their entities this way?

Debra:
Before I wrote the story, I reached out to NAR multiple times and I also reached out to the American Property Owners Alliance and I received a lot of written responses that repeatedly said that the organization is bipartisan and the organization gives money to organizations on both sides. That is true, that does also not tell the whole story because they do give money to groups on both sides, but they give significantly more money to sides that are aligned with Republican and Republican causes. They also give money to groups that it’s a mystery how they’re connected to issues of housing or property rights. And they r created this organization. They said because they wanted to have a specific organization to represent homeowners property owners and promote property rights. But a lot of their grant recipients have all these issues stated that have to do with education, that have to do with defense, that have to do with green energy or the lack of green energy. There’s nothing about home ownership there. And I asked them specifically, how is this organization related to property rights? How is this one? They did not respond.

Dave:
I see

Debra:
Sometimes I got a no comment. Sometimes I got answers that simply did not give a direct answer to those questions. They have not responded since the article was published. If that’s also a question

Dave:
I get that they say that they’re bipartisan and so this reveals some inconsistency between their public stance and what they’re actually doing. But is it possible that the NAR has just decided that right wing or Republican candidates or causes are more supportive of a’s overall mission?

Debra:
I think that is possible, and I think there’s nothing wrong with that if that’s the case. I think the problem is, and many members would agree with me that that’s not what they’re telling their members who are paying their dues. You could support whatever you want, that’s fine. You just have to make sure that the people who are giving you the money you’re using for that support know what you’re doing and why you’re doing it. And the paper trail has to line up with what’s being said out loud, otherwise you can be accused of being dishonest.

Dave:
Right. So that part I totally get, I was just curious if they’ve mentioned anything about that. You said you talked to some members. What kind of reaction to this story have you heard from real estate agents?

Debra:
It’s been both positive and negative. I have received a lot of emails from real estate agents who have thanked me for the reporting, who have said that they find themselves increasingly frustrated, mainly because in their mind the dues that they pay to NAR are not voluntary and are not optional. And this brings in a much more complicated issue for which NAR is getting a lot of heat ever since the settlement because a lot of agents feel that they are required to pay dues, but NAR is not representing their interests. So if these agents also have politics that don’t align with the giving of the American Property Owners Alliance or they simply don’t want to have to pay dues that go towards an organization that is a major funder of two of the biggest anti-abortion groups in the us, they feel that they have no choice.
And there’s the frustration. NAR is also facing a number of lawsuits from its own members right now, actually, I don’t have the number offhand, but there’s several. One of them is even a class action suit accusing them of requiring membership rather than making it voluntary. And there’s a lot of frustration from agents who feel that in order to do their jobs, they have to kind of pay to play, so to speak. They have to fund n ar. There’s also been agents who feel that this reporting was unfair and there are people who don’t trust the media. And that’s something that as journalists we deal with and we try to make it as clear as possible whenever we can tell people that our job is simply to report the truth. And I don’t have any sort of stake in this game. This is my job. Real estate is my beat, and NAR is hugely powerful and influential in the real estate world. So I have an obligation as a reporter to look into them as carefully as I can and report things that are newsworthy. And some people are not going to agree with that. And our job is just to continue to do the best journalism that we can and hope that people read it.

Dave:
Yeah. What do people say when they say this reporting is unfair?

Debra:
A lot of them repeat the talking points that NAR is putting out, which is part of the problem. Prior to this article being published, NAR circulated a letter to its top leadership using terms like we will continue to fight. And I think the word bias was in there and a lot of words that are thrown around when people talk about journalists often. And it did not do any favors for people wanting to come to the story with an open mind. I also have done a lot of reporting on NAR. It’s been the primary focus of my reporting and a lot of people don’t understand that journalists have beats and we have specific things that we focus on and we become subject matter experts. And NAR is at the center of my beat, so there’s nothing personal in my reporting. It simply is what I focus on and what I know a lot about. And sometimes people don’t understand that and I’m always happy to educate them about it. And that’s how we do the best work that we can. I mean, I want to know the subject matter as well as I possibly can. I want to know all the players, I want to know all the details so that when I’m reporting it, I can come to it with as much background knowledge as possible and bring that to every single story.

Dave:
Alright. Well thank you for sharing the reaction there. I’m sure that’s going to continue to unfold over the next couple of weeks.

Debra:
I’m sure it’s people

Dave:
Understand, digest and react to this news. I’m curious because NAR is so much of your beat and we started the show talking about how much they’ve been in the news. Do you have any thoughts on what this means for NA’s position in the real estate industry as a whole?

Debra:
Well, it’s a complicated question. We’re also facing a major political change in the US and I have no doubt that the administration that’s coming in in January is going to tackle NAR and also conflicts of interest and lack of transparency differently than the previous administration. So it’s a difficult question to answer right now. We really have to wait and see how it unfolds. What happened in addition to that lawsuit that you and I discuss at the top of the episode is that also the Department of Justice reopened an investigation into NAR. The Department of Justice has actually been looking into NAR separately for over a decade. It’s gone back and forth and it’s closed and it’s reopened and the investigation has now been reopened and they’ve been very vocal about how even though there was a settlement, they’re not done looking into NAR and they think there are things that are still not above board and they want to pursue some sort of judgment on that. But nothing has happened yet in terms of how that’s going to play out and the clock is ticking. And I have no doubt that a Trump administration and a Trump DOJ is going to handle that differently than a Biden administration and a Biden DOJ did. So it’s, it really remains to be seen. It’s a big question mark.

Dave:
Alright, time for one last word from our sponsors, but stick with us. We’ll talk about how NAR has shaped the housing market and what this means for home buyers right after the break. Welcome back to the show. Let’s pick up where we left off. I want to ask what this means for home buyers or for real estate agents, but is it just too early to know?

Debra:
Well, again, it’s a question without a simple answer, which is my favorite kind of question. But with the settlement immediately when that settlement came through in March, the big question was what does this mean for home buyers? And a lot of my reporting and also other journalists reporting really focus on the idea that in the long run, this is going to lower home prices because it’s going to force commissions down. There was a lot of pushback from within the real estate community about that. We have now seen three preliminary studies about whether commissions have gone down as a result of the settlement. The biggest one and the one that I personally feel is the most well sourced and reliable is said that commissions have gone down. But there have been two others that have said that they haven’t. So it’s a really difficult thing to track so far. It’s still very, very new. The settlement was only approved last month.
These things move very slowly in my mind. The best people to speak to about this are economists and experts on long-term thinking and long-term shakeups of how things are paid for and how they work. And all the economists that I have spoken to have said that this will eventually force commissions down, which in turn will lower home prices because home prices, they bake in commissions, but it’s going to take time. We’re not going to see things happen like that. It’s going to take several years. It also is going to take a lot of knowledge and accountability on behalf of homeowners and home sellers who have to be willing to say to their agents, I don’t want to pay you 6% I to negotiate. And then real estate commissions have always technically been negotiable. But the crux of that legal argument was that people didn’t know they were negotiable or when they tried to negotiate them, the ages wouldn’t allow them. So home buyers and home sellers and the American consumers have to hold the real estate industry accountable for the changes that the settlement was supposed to bring in order to make sure they actually play out.

Dave:
Yeah, I see that every day. Just being in the real estate industry, it doesn’t seem like much has changed dramatically, but we’ve brought on economists to talk about this on the show as well. And it does seem like the general thinking is that this will open the door to competition and to new ways of doing things. That takes time, like you said. And so this is just a story that’s probably going to unfold over a while. I’m just curious though, this might not necessarily impact homeowners in the short run, but it just these repeated stories and they ar being in the news constantly it seems over the last couple of years. Do you think this weakens them as an organization in any way or is going to change their overall standing as such a powerful player in the real estate industry and as sort of a national level organization that people know about?

Debra:
There is no doubt that this has weakened n ar in a number of ways. The primary one being their credibility. And I see this, I read the comments on my stories. The New York Times is a very well read publication and people do comment. And the number of comments that I see that show a lack of trust in real estate agents, a lack of desire to work with them, it’s really actually the people it’s hurt the most are the agents on the ground,
Many of whom are really good people who are just trying to make a living and have no other option than to be a member. The average home buyer, the average consumer, the average American is ever going to interface with NAR as an entity. But they probably are going to buy or sell a home or rent to home or have some sort of interaction with a landlord or someone who is a member or involved with NAR. And there the credibility has really been weakened and there’s a lot of frustration. If that frustration translates into real estate agents finally saying, we’re not going to put up with this anymore. We’re going to hold NAR accountable,
Then we will see a real shift. And it’s starting. You see lawsuits from real estate agents who are suing their own trade organization. And you see that now there has been the emergence of a small rival real estate trade organization, the area, the American Real Estate Association run by Jason Haber and Mauricio Yuki, and they are trying to offer an alternative. Nana’s real power play is that they do still control these databases where homes are bought and sold. And so much of the way that we search for homes and consumers purchase homes has changed. But so much of the way homes are sold and the way the real estate industry functions has completely not changed for decades. So when those two things start to line up more and there is, like you said, new competition in the market, new ways technology can be brought in to help agents sell homes without having to go through the avenues that NR controls, then I do think we’ll see a broader weakening of their power.

Dave:
Well, Deborah, thank you so much for coming and joining us today. This has been really helpful to understand what’s going on with NAR. We really appreciate your time.

Debra:
My pleasure. Thank you for having me on.

Dave:
Thanks again to Deborah and thank you all so much for listening. Just a couple things. We did mention a couple of stories that Deborah has published, as well as a few episodes that we’ve published here on the market. We’ll put links to all of that in the notes below. And in addition, I’d love to know your thoughts if you’re a real estate agent, if you’re in this industry, let me know what you think about all of the news surrounding NAR in the comment section. We’d appreciate hearing from you. Thanks again for listening. We’ll see you next time for On The Market.