REALTOR Dues to Pay for RPR? (UPDATE: CONFIRMED! Plus More!)


As a blogger, rather than a “credentialed journalist” (whatever that means), I have the freedom to just pass on rumors, as long as I label them as such. Well, consider this one of those rumors I have not confirmed yet. [UPDATE] I just got a second person to confirm the rumor. Two people saying the same thing now moves this past the realm of rumor into a confirmed report. More detail below..

I’ve heard from a reliable source earlier this evening that there are some major changes afoot at NAR. The biggest upshot of the changes is that starting in 2012, portions of the dues from NAR members will go towards supporting RPR, REALTORS Federal Credit Union, and other so-called “Second Century” Initiatives. A few minutes of Googling suggests that the original Second Century Initiatives program — which included a line item for “The creation of a national gateway for real estate information, not a national MLS” — was funded by a $16 increase in dues in 2008.

But from the start, RPR was presented as a wholly-owned for-profit business unit of NAR that would be self-sustaining, after the initial investment of roughly $25 million to buy the Cyberhomes assets from LPS and a few million for LPS data. The idea was that the data generated by RPR would be very valuable when sold to financial institutions, government agencies, and the like, and the operation would throw off enough cash not only to continue providing the system to REALTORS at no charge, but also to generate enough profit to pay back NAR.

For reference, here’s a report of a Q&A session with Dale Ross, CEO of RPR, back in March of 2010:

Why should Second Century need to be paid back?

NAR’s Second Century fund is a venture capital fund which must paid back for its investments. However, that’s not the source of RPR’s funding. RPR money comes from an NAR technology fund set up with $100 million fund (from investments); NAR’s Finance Committee stipulated that monies must be paid back to replenish fund.

Since you’re providing RPR for free, where is money coming from? What happens if your revenue models are way off?

Three scenarios: app doesn’t work, we shut down; app works and rev model works, win-win; app works but rev model off. We project we’ll need $50 million/yr to run it… if it is valuable and not generating cash, we’ll figure up another funding source. If members want it and NAR Directors decide that is best way, that could be a member dues increase. I have never seen pro formas work; I have pushed the numbers around based on a 36-month breakeven. We’ll see. (Underline added for emphasis)

Well, if the rumors that member dues will start paying for RPR starting 2012 are true, then I’m gonna take a wild stab and suggest that the 36-month pro formas were way optimistic. Since we’re looking at a dues increase in two years (launch in 2009, dues funding decision in 2011 to take place in 2012) to support RPR.

A few questions arise. The first of which is, “So uh, is this true?” I’d love for anyone who can confirm or deny the rumor. Please feel free to contact me privately via email, twitter, Facebook, phone, whatever. My contact information is on the About page. More questions follow, all of which assume this rumor of dues funding for RPR and other Second Century Initiatives is indeed true.

So Uh… Just How Badly Is RPR Doing?

Since RPR was supposed to be not only self-sustaining to the tune of $50 million per year, but profitable to the point of repaying the $25 million to the $100 million “technology fund” over some period of time, I’m gonna have to guess that RPR is falling way short of projections. So, how far short is RPR of its revenue and profit targets?

Are we talking about a couple of million bucks as a short-term cashflow crunch? Or are we looking at permanent downward revisions to estimates?

If we are looking at permanently lowered expectations… how much lower are we talking about? In other words, Dale Ross thought it would cost $50 million per year to provide RPR. Three year breakeven would suggest $50 million in revenues by 2013. So going into 2012, when the NAR subsidies start, are we talking about $48 million in revenues, therefore requiring $2 million a year in subsidies? Or are we talking about the reverse: more like $2 million in revenues, requiring $48 million in subsidies.

There’s a rather large difference between the two numbers. For reference, the whole REALTOR Party Political Survival Initiative that caused so much drama last year, only raises $40 million per year.

[UPDATE: I just got word that the amount is in the $20 million range for support to RPR. It is unknown at this time whether that is $20 million per year, which would be a gigantic number, or $20 million over some period of time during which RPR could/should/might become self-supporting. This is not yet confirmed.]

Speaking of RPPSI…

Relatedly, one wonders whether the passage of RPPSI had anything to do with this dues support decision for RPR (and other Second Century Initiatives, like the REALTOR Federal Credit Union).

At the time of RPPSI being passed, it was explicitly stated that the $40 dues increase would be dedicated to political activity, and that it was impossible to get the kind of money NAR needed to fight off banks, unions, and other moneyed interests after the Citizens United ruling by the Supreme Court. The financial impact on NAR was to be significant:

To fund such a nationwide effort, the REALTOR® Party Political Survival Initiative proposes a dedicated dues increase of $40. Because it is “dedicated” to this initiative, the dues increase would be used exclusively to fund political advocacy efforts. Nearly 70 percent of this money is earmarked for state and local issues. If it is approved, over 50 percent of the NAR budget would be devoted to political advocacy, which consistently ranks among members as the number-one benefit they receive from NAR. (Emphasis added)

Furthermore, much was made of all of the cost-cutting that NAR had done, was doing, and was going to do:

What is NAR doing to cut costs and operate more efficiently?

Much of what NAR does, including all governance activities and meetings are NOT funded by dues dollars. Dues dollars are spent on products and services that directly benefit the members. With this proposed increase, more than 50 percent of NAR dues will be spent on the number one service that members want from NAR — political advocacy. Additionally, recognizing the impact that the current economic environment has had on Realtor members across the country, beginning in 2011, NAR has instituted stringent cost cutting measures across all operational areas of the organization. In addition to a hiring freeze that will serve to reduce NAR’s staffing levels by 10%, remaining staff are also impacted by salary freezes and reductions to benefits.  Every operating area of the organization has instituted austerity measures designed to trim up to 20% off their expenditures, resulting in an overall savings plan of $12 to $15 million per year for the next three years.  These cost savings are designed to be able to provide the most efficient and effective program services.

The basic argument was that NAR had cut to the bone, but this political issue was so big, so important, so momentous that it required the dues increase.

So, um, if over 50 percent of the NAR budget is devoted to political advocacy, and NAR dues are $85 per year plus the $40 for RPPSI, it would imply that half of the $125 million per year would go towards politics. NAR had put in austerity plans to cut $12 to $15 million over the next three years, so as to be able to operate member services on $62.5 million.

Where is the money to support RPR and the other Second Century Initiatives coming from? There is a legitimate question as to whether the RPPSI funding passing allowed some re-allocation of the NAR budget away from political advocacy (the most important work of NAR, to face monumental issues) towards these initiatives.

Is the Decision Made?

Finally, my source told me that the decision to financially support RPR and other programs was presented as a done deal. It was already made, and would start in 2012.

But if we take Dale Ross’s word for it, member dues would go towards paying for RPR only if “members want it and NAR Directors decide that is best way”.

The NAR Convention in Anaheim is some two weeks away. The Board of Directors of NAR has not yet met to vote on this issue. If there has been a member survey of any kind, or any sort of outreach to membership to find out if they want RPR or not, I’m not aware of any such effort. (Of course, not being a member of NAR, I couldn’t say whether such a thing was done or not. But many of you are members, and could tell me if you’ve seen such outreach.)

So if the decision has already been made, who made them? Did Dale Ross simply mis-speak back in 2010? Was it just marketing-speak, as opposed to actual policy?

[UPDATE: I am hearing that yes, indeed, the decision has already been made. This will not be put to a vote of the Board of Directors in Anaheim. This is as yet unconfirmed.]

Rumors, Questions… Confirmation?

As I’ve noted, this is just a rumor at this point, but I trust my source, who has been reliable in the past. I’d love to be able to confirm or deny the report, so that’s step one.

Assuming the rumor is true, then the questions I raised are ah… interesting ones to say the least. And there are, probably, other questions that could be raised given a little bit of thought.

So I want answers. And many of you are entitled to them.

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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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