NATIONAL ASSOCIATION OF REALTORS®
2004 Annual Report: An Interview With Terry McDermott

NATIONAL ASSOCIATION OF REALTORS® Executive Vice President and CEO Terry McDermott will retire at the end of 2005 after almost nine years with the association. In that time REALTOR® membership has grown 54 percent (from 716,000 to 1.1 million) and existing-home sales have continued to break records. McDermott sat down with REALTOR® Magazine editors at the end of 2004 to discuss NAR’s recent accomplishments and its ongoing agenda.

Q: Perhaps the biggest milestone of 2004 came when the association surpassed 1 million members. What does that mean to you, and do you see that number sustaining?

A: Our membership number is a very positive sign of industry prosperity. It's also a positive sign of the perceived value of the REALTOR® brand, which has been helped by our public awareness campaign. Our research indicates that people who’ve been real estate licensees for five years or longer have joined the association recently in relatively large numbers; and they perceive significant marketplace benefits from the REALTOR® brand.

Of course, the flip side to having more than 1 million members is that our size makes it a little harder to stay close to members. Again the benefit is, of course, the potential power of 1 million members. To stay in touch with members, NAR publishes REALTOR® Magazine each month, sends a Membership Reference Guide each year, and offers instant access to the association through its Web site, REALTOR.org. In addition, members can call or e-mail Information Central, NAR's customer service and support center five days a week. Info Central received and responded to 150,000 calls and 80,000 e-mail messages in 2004.

As to sustainability, I believe that membership number will sustain, because home sales will continue to be strong. I recently was in a meeting with Dr. Jeremy Siegel from the Wharton School of the University of Pennsylvania, one of the better forecasters I’ve met. He doesn’t foresee, as NAR’s Chief Economist David Lereah does not, interest rates in excess of 7.25 percent for the foreseeable future. Real estate is always interest-rate driven. There are inflationary pressures in the market but they’re relatively minimal. We’re forecasting as much as a 5 percent decline in existing-home sales for 2005. But that would be down from an all-time record of 6.5 million. So if the forecasts are true, we’ll go to 6.2 million, which still would be double the rate of existing-home sales 10 years ago.

Q: Do you see complaints from some members who feel there are too many people getting into the business?

A: Sure! Any time you have a long period of expansion in the real estate industry, more people join the REALTOR® family. People aren’t thrilled to be cutting the pie with more and more practitioners. So you have people complaining that we should restrict growth or membership by raising the bar. But we’re not in the business of keeping people out of real estate; we’re in the business of making it an extremely attractive career choice, one that will retain talented people for many years to come.

Through our Professional Standards Committee and continuing education offerings, we’re already making sure the standard of REALTOR® membership and the standard of performance continue to grow and to contribute to the prestige of our brand and the value of membership. The answer isn’t erecting barriers. The answer is giving people the tools they need to be as professional as they can possibly be.

Q: The opening of our new Washington, D.C., building—which allowed NAR to move from tenant to owner in the nation’s capital—was another major milestone in 2004. What do you see as the impact of that move?

A: Well, it’s been emphasized time and again that the new building gives us much greater visibility in D.C. But I also think there’s enormous symbolic value in what we accomplished with that building, thanks to the association’s financial assets and our members’ spirit and commitment to homeownership and the community. Before coming to NAR, I was with the American Institute of Architects. Certainly, the architects share our quality-of-life agenda. But they don’t have the capacity to build a $45 million  LEED-certified building.

Q: Was the decision about LEED certification part of the original plan?

A: Yes. One of the candidates who competed for the design was focused on an energy-efficient, environmentally sensitive structure. And that idea carried over into the Real Property Operating Committee, which oversaw the project. The members felt strongly that REALTORS® should show people how to build well and how to build in a way that doesn’t detract from the environment. It’s also advantageous for us to say to the people in Congress three blocks away, “This is the right way to do things.”

Q: This was an election year, and NAR came through the Nov. 2 elections with an impressive record of helping elect pro–real estate candidates. Why is that important? Also, some members expressed concern when they disagreed with a certain candidate’s stance on other issues.

A: To your comment about this being an impressive year: The REALTOR® Political Action Committee had a 97 percent winning record this year among Congressional candidates. RPAC raised more than $5.4 million in 2004, surpassing the year’s fund-raising goal of $4.4 million. The RPAC participation rate for 2004 was 41 percent, with more than 400,000 members donating to RPAC. Also, NAR grew membership in its direct giver fund-raising program, the President's Circle, from 70 members in 2003 to 160 in 2004.

It will never be possible to achieve perfect unity, but it’s our mission to represent the interests of all 1 million members. NAR is concerned about where candidates stand on real estate issues, not whether they’re Democrats, Republicans, Libertarians, or whatever. When it comes down to issues affecting American property owners or organized real estate, the party we care about is the REALTOR party.

Editor’s Note: NAR doesn’t support presidential candidates. Local members and associations select whom they’ll support in state and local races and pass that information to NAR’s RPAC system for funding consideration.

Q: Independent studies tell us the  Public Awareness Campaignhas made consumers much more aware of the value REALTORS bring to the table. The campaign has now been going for seven years, though. Why is it important to continue advertising?

A: The reason to continue it is the same reason we started it: to create a brand awareness and preference among consumers for using REALTORS® and to add to consumers’ confidence that a real property purchase is something they can do efficiently and with great trust and transparency if they use a REALTOR®.

Q: Let’s talk a little bit about a technology initiative that was announced in 2004—the effort to create a REALTOR®-centric transaction platform. Why now? What will make it different from efforts launched a few years ago by REALTOR.com and others?

A: NAR is partnering with a subsidiary of the CALIFORNIA ASSOCIATION OF REALTORS® on a transaction platform. We think there should be such a service available from the REALTOR® community as one of many choices. We want a strong REALTOR® presence in the technology area.

We’re not saying use one system vs. the other. But we’re confident CAR will produce an extremely competitive, high-functioning product for people to consider. At the end of the day, the fact that multiple technologies and platforms are competing for our members’ business is great.

Q: What’s the fundamental value NAR brings to its members?

A: I’m probably a dinosaur but I believe the core value of being a REALTOR® goes all the way back to NAR’s launch in 1908. It rarely occurs to people that thanks to 100 years of constantly working for better regulations and legislation, we’ve made real estate a highly trusted equity. It wasn’t so for many decades. People were rightfully concerned back in the land-boom era of the teens and 20s with whether property was titled, whether they were being scammed. Today no one thinks about that anymore. We bring ethical standards to the business and have created an orderly and transparent market, which both homeowners and users of commercial property can enter and leave with great facility and without concern for their investment equity.

The government-sponsored enterprises, Fannie Mae and Freddie Mac, make a similar impact by driving down the cost of mortgages and making them available to more and more people, which is a key component of our incredible homeownership rate. There are a lot of very sophisticated countries in which getting a mortgage is a very, very difficult thing.

Q: NAR members also bring great value to the community at large.

A: Indeed! This is a generous group of people. In 2004 alone, real estate practitioners have donated to disaster relief for tornados and hurricanes here in the United States and to tsunami relief for Southeast Asian communities. In their hometowns, practitioners help their community everyday. REALTOR® Magazine's annual  Good Neighbor Awards program recognizes REALTORS® who've made an extraordinary commitment to improving the quality of life in their community through volunteering, such as to help seniors, child abuse victims, and shelters.

On a broader scale, NAR's Housing Opportunity Program positions REALTORS® as leaders in identifying, developing, advocating, and promoting opportunities that expand housing availability and affordability in both the rental and homeownership sectors. In 2004, the number of local and state REALTORS® housing opportunity initiatives rose from 150 to 200. Then, there's the HOPE Awards, which we sponsor in conjunction with five other real estate professional organizations. Through that program, NAR helps recognize up to seven organizations and individuals who are making outstanding contributions to increasing minority homeownership. The HOPE Awards (Home Ownership Participation for Everyone), which are given every other year, will be back in 2005.

Q: Would you say the mortgage market is vulnerable because of recent revelations about the GSEs’ accounting practices?

A: The one thing everyone can be assured of is that REALTORS will fight to protect the integrity and high standards of our mortgage marketplace. It’s a key component of homeownership and a key to the continued expansion of the American dream.

There’s a lot of political heat on the GSEs: The size of their portfolio is way up and their debt is being sold internationally in a significant way. So if they need more sophisticated oversight than is provided by the Office of Federal Housing Enterprise Oversight, that’s fine. The last thing in the world we want is to see people lose confidence in the quality of that debt. But we also don’t want to see the GSEs overregulated or severely limited compared with other financial institutions, which could weaken the housing market.

We want to see the GSEs’ housing mission remain with the U.S. Department of Housing and Urban Development. We don’t want that oversight to go to the U.S. Treasury. The Treasury wasn’t founded to insure the security, integrity, and prosperity of homeowners in the mortgage market. Alexander Hamilton was clear in its purpose: to protect and defend the interests of national banks at all costs. NAR will work very hard to make sure oversight of the GSEs’ housing mission doesn’t segue over to the Treasury Department. But is better oversight a good thing? You bet.

Q: What pressing issues do you see on the horizon?

A: The flat tax is just media noise, although no one is safe when the legislators are in tax-reform mode. The first goal of the Bush administration is to seriously focus on some sort of rational solution to the Social Security situation. Second, the administration wants to make permanent the temporary tax deductions, particularly on dividends and capital gains, and to eliminate the estate tax. Government expense isn’t going down, so a flat tax isn’t going anywhere. It’s very difficult to calculate what level of flat tax is sufficient to make up for what the government is collecting now.

Then there is the banks-in-real-estate issue. Lawmakers again this year passed a temporary ban, through the fiscal year that ends Sept. 31, 2005, on allowing big banks into real estate brokerage and management. We have very strong support for a permanent ban: More than 300 members in the U.S. House of Representatives and the U.S. Senate are on our side. But the Speaker of the House wouldn’t allow the ban to go to the floor in the appropriations bill for what he says was a procedural reason.

So we’ll try again next session. We don’t care if it takes 20 years to get a permanent solution. It’s wrong to mix commerce and finance; it’s not good for consumers and homeownership to have banks being real estate brokers. That’s an absolute. So, if necessary, we’ll continue to fight year after year after year. If the banks’ strategy is to exhaust our will, it isn’t going to work. We’re going to fight this in Congress until we have a permanent solution. It started as a hobby and now it’s a career.

Q: Proposals to allow associations to provide health insurance coverage through association health plans have been advanced in Congress. What do you think are the chances of passing AHP legislation in President Bush’s second term?

A: Efforts are alive and well. To this administration, AHPs represent an opportunity to find a significant private-sector solution to health care coverage. We, along with our 170 AHP coalition partner organizations, have a lot of work to do. Next year, AHPs will join the banks issue as a top priority. The elected leadership of NAR, certainly myself, and all staff involved can’t think of anything more important to our members and the security of their families than being able to access quality health care coverage at a reasonable cost.

This coverage also is important from a business standpoint. It would allow brokers to attract more people to the industry as a first career choice. Right now, some people say, I’d love to be in real estate. But I can’t give up a consistent salary and make my family vulnerable. If we take away the vulnerability, perhaps we can continue to increase the pool of quality personnel in our industry.

Q: Would the health plans be available through the state associations?

A: No. State attorneys general are against AHPs because they aren’t confident these programs will have adequate oversight. Frankly, state-sponsored plans have been available but haven’t been a solution everywhere. Conservative members of the U.S. Senate also want to make sure associations don’t try to start their own plans, bankrupt themselves, and leave their members uncovered. We have to assure them that we’ll use third-party providers. And we need to work with those providers—the Blue Cross and Blue Shields, the Aetnas, PPOs, HMOs—and say, “What are your concerns? How can we structure this program so that you’re comfortable?”

Q: Looking at the industry today, with all the new business models and the growth in membership, has NAR done a good job of keeping organized real estate unified?

A: The MLS is still one of the great examples of industry cooperation in the world. It’s the envy of real estate organizations throughout the world. Because of the unity in the business, 90 percent of all listings in the country are accessible either on a broker site or REALTOR.com—that’s a remarkable testimony to people who are intensely competitive for listings, sales, and client relationships, not to mention the regulatory and legislative challenges to our industry.

Q: Do you have concerns about REALTOR.com’s long-term success?

A: No. It’s the preeminent real estate information site on the Internet. Nobody even comes close. It’s up to about 8 million unique users a month. The site’s rate of organic traffic growth is one of the highest on the Internet. My business concern is ensuring that REALTOR.com can continue to always put up every MLS listing at no cost. To do that, the company must find the right business model to make enough profit to continue investing in the success of our members.

Q: Is one problem that most of REALTOR.com’s revenue comes from within the real estate industry?

A: REALTOR.com is the cheapest deal in town. The per-exposure, per-unique visitor, per-lead cost is so minimal. If you don’t like it, don’t pay anything. The listing will be up anyway. What a deal! Members who don’t use it really have limited their marketing potential, I believe. But if you look at the site, you’ll say, “There’s a tremendous amount of consumer traffic there. For a minimal amount of money, I can enhance all my listings with pictures and tours for a year for the cost of a one-time, half-page ad in the local newspaper.” If I were a practitioner, I’d be spending every marketing dollar I had on REALTOR.com and the Internet.

Q: Is there any final message about 2004 that you would like to leave?

A: It was a good, solid year. We successfully protected our trademark (the U.S. Trademark Trial and Appeal Board in 2004 unanimously ruled that the terms REALTOR® and REALTORS® aren’t generic terms), opened our new building in Washington, D.C., saw significant growth in existing-home sales, and achieved the temporary reduction in the tax recovery period for leasehold tenant improvements from 39 to 15 years. And once again, we earned a one-year moratorium on banks in real estate. That’s a terrific list of accomplishments for a single year.