Dues Collection Q&A
Dues Collection Proposal Questions & Answers
The following Dues Collection proposal Q&A was developed to respond to questions from AEs and REALTOR® members. Proposed changes to the Dues Collection policy presented at the November REALTORS® Conference & Expo were deferred to the 2003 NAR Midyear Meeting. Send your questions and comments to: duesfeedback@realtors.org.
The first two proposals relate to specific bylaws changes for dues collection policies.
On the recommendation to prorate dues monthly instead of quarterly:
1. Why was the recommendation made?
A. To provide better service to members. Quarterly prorating does not benefit either the member or the association because members joining the association part way through a quarter are sometimes counseled to wait a month or two until the dues are lower, thus delaying their access to member benefits. On the other hand, new members often question why they have to pay a full quarter's dues for a month's service.
2. Won't quarterly proration have a financial impact on local associations?
A. If members are waiting until the beginning of next quarter to join, a monthly proration will mean more income to your association.
3. Would this proposal require a NAR bylaw change?
A. Yes, this dues policy change would require a change to the NAR Bylaws. Bylaw changes require a 2/3 vote by the NAR Board of Directors. This vote is expected to take place at the 2003 Midyear Meetings.
4. Would local associations need to change their bylaws as well?
A. Yes. But if your association has adopted the provision that allows for mandatory bylaws language from NAR to be adopted by your local Board of Directors, it would only take one meeting of your board to approve the change to your bylaws. The recommended changes would become effective January 1, 2004. If your board has not adopted this bylaws change provision, then you'd follow your local bylaws. If any association cannot change their bylaws easily each year, please contact NAR's Member Policy staff to review your bylaws.
5. What changes to my membership software would be needed to accommodate quarterly proration?
A. Your accounting software may have "frequency" settings for calculating payments. Quarterly and monthly are standard settings. Contact your software manual or vendor to determine how to change the frequency of the calculation.
6. What changes need to be made at the state association level to accommodate a proration?
A. Most state associations will probably amend their bylaws to change to monthly proration. State prorations typically follow the NAR portion for ease of calculations and understanding by the membership. Check with your state association for further guidance.
On the recommendation to change the grace period for dues from 90 days to 45 days:
1. Why was the recommendation made to shorten the grace period?
A. The proposed change follows the recommendation to change from a quarterly to a monthly proration for new members. In other words, if dues were prorated monthly, then providing three months to pay for members who were technically required to pay by January 1 did not seem consistent.
The change is more equitable for members who do renew, and it is more cost-effective for all levels of the association. To offer three months of free service to those who do not renew results in providing services in the hopes that members will later pay for them retroactively. Existing members do not like the idea of subsidizing non-renewing members. Further, the cost to NAR, states, and locals for those members who might drop three months into the year is costly: these include magazine printing and distribution, use of hotline services, access to software, and more.
2. What is the status of the proposal?
A. A vote has been postponed until the NAR MidYear meeting in May. The grace period proposal includes the following recommendations to the Board of Directors made by the NAR Finance Committee, Membership Policy & Board Jurisdiction Committee and the NAR Executive Committee:
a) Renewing Members - grace period of 45 days (CHANGE from the original proposed 15 days);
b) New Members - submitted by last day of the month following the month they join (CHANGE from the original proposed 15th of the month);
c) State Associations cannot require that NAR dues payments be sent to the state association.
3. Our local association charges late fees to cover those costs. Why not have state associations and NAR apply late fees rather than move the grace period for everyone?
A. While a local association may begin collecting late fees on or close to January 1, many states and NAR do not assess late fees until later. The late fees collected locally are typically on the entire member dues bill (not solely the local portion), but the local association retains that entire fee to cover local expenses. State association and NAR late fees are added much later, but in some cases are made retroactively to April 1. Typically, a local board submits state dues prior to the time the first state late fees are assessed Individual members do not pay renewal dues to state and national: the association does.
4. Why is there such disagreement among AEs on the grace period issue?
A. Some associations currently allocate six or seven months for the process of collecting dues. Those organizations will need to change their collection process to accommodate a shorter period of time with 45 days removed from the end of the current grace period. Some associations that start the dues collection process just a few days before or after the actual due date of January 1, will need to make the most significant changes because their entire collections process has been after the deadline, not before it.
Other associations collect renewal dues at a different time, or have already shortened the collection period. Most of these associations will not be affected by this truncated grace period.
5. Isn't is true that any change to the length of time local associations can retain dues money and invest it for the "float" will result in less income for the local association?
A. Yes, the float is an important part of the debate and it is a concern to local associations. Just as the cost of dues collection typically is part of a member's local dues, the "float" amount often is budgeted as offsetting income at the local level. The proposed change reflects a 45-day reduction in the amount of interest income a local association could retain on the entire portion of the dues. However, the 45-days of float could be made up on the front end by establishing an earlier due date for members.
6. How can I provide due process if I have to cut off services before the end of a calendar year?
A. The model bylaws provides for "notice of suspension." Notice of the date when services will be discontinued (such as January 1) does not mean you turn services off early it means you are notifying them of the date when services will be discontinued. Non-payment of dues should not be confused with the "due process" provisions of terminating membership for other reasons such as violations of the Code of Ethics. When a member does not pay dues to renew membership, the Association is not required to provide services without payment.
7. I do not have time at the holidays for processing dues.
A. The Dues Collection work group believes that 45 days is a reasonable timeframe for final collections and remittal after the due date. However, you may want to begin your collection process earlier. Remember, the proposed February 15 date is still a full 6 weeks past the holidays.
8. I don't do my budget until December each year. We like having 11 months of figures to use to establish our dues for the next year.
A. You may want to consider earlier budgeting. NAR calculates its dues amount in May of the previous year and state associations typically plan budgets in the summer or earlier, based on membership number assumptions.
9. How do we respond to members who believe they have a right to pay in the calendar of the year the service and not one day earlier?
A. Respond that dues are due January 1, and there is no obligation to provide any benefit without payment of dues.
10. If the association doesn't know which REALTORS® are going to renew before January 1, how can the designated broker (DR) be made aware of that in advance?
A. Approximately one month before the deadline for the REALTOR® payment, you can notify the DR of which agents have not paid. That will provide 30-days for the DR to decide which licensees will remain in their firm (requiring payment by the licensee or by the DR), or which licenses will be returned to the state licensing authority. DRs typically use the last date provided by the association as the date that they require the licensee to decide. If the association says they will cut-off by February 28, then the DR uses that as the date; if it's March 31, the DR will use that as the date; if it's January 1, then that's the date. It is largely if not entirely influenced by the "drop" date the association gives the DR.
11. Will I have to change my fiscal year to accommodate this change?
A. No association should need to change its fiscal year to comply with the proposed changes.
12. Will I have to pay taxes on the money I receive for dues payments in the prior year?
A. Prepaid dues should not be considered taxable. Your accountant or tax advisor should be able to show you how to account for dues paid in prior years as a prepaid item for tax purposes, regardless of whether your association is on a cash or accrual basis, or is a non-profit or for-profit. Typically, prior dues payments are accrued to the following year. Of course, if you’re a non-profit, membership dues are generally not taxable anyway.
13. Why can't NAR pay the local association to collect dues?
A. Because the member is already paying the local association to collect dues. NAR has made efforts to provide services to reduce the costs for dues billing, such as developing an electronic option for billing and collections, and negotiating lower credit card fees using collective buying power. These options provide substantial savings to associations for billing, collections and acceptance of credit cards. (NOTE: this question and the one below are included because they have been asked. Changes to the dues formula or NAR budget items are not part of this issue.)
14. Why not have the state associations and NAR bill their own dues?
A. It would be a disservice to members to have them pay three times the administrative cost for the same level of services. Such a plan would also mean that the bookkeeping and records would have to be replicated on all three levels of the organization. This is not a wise use of resources.
15. What is the process for approving this policy change?
A. A 2/3 vote of the NAR Board of Directors is required to change the grace period as there is a bylaws change required.
16. Why is there a recommendation that state associations cannot require that NAR dues be submitted to them prior to the dues being mailed to NAR?
A. This appears to be a tradition with no explanation. Local associations write checks payable to "NAR", so there is not an issue of states trying to keep NAR float for a number of days. And most state associations do not try to reconcile the NAR portion of the dues, so without a reason for checks to be sent to states first, it made sense to say that it cannot be required.
17. Does NAR assess penalties to associations that pay late? Why should every association have to be penalized for those who pay late?
A. NAR presently charges 1.5% per month for any dues received after March 31, and has, collected late fees from a number of associations over the years.
18. Some say this grace period issue is so controversial that it will deeply damage the AE-NAR relationships in the organization and will consume the limited time available to discuss real estate issues. What's the response?
A. The intent of the proposed dues changes are to increase efficiencies and to reduce the costs of maintaining "deadbeat" members who have no plans to renew but get free services for the first quarter of the year at the expense of everyone else. Candid communications through this Q&A, AETalk listserv discussions, committee discussions, and forums at the upcoming AE Institute, will help reduce the amount of misinformation about the proposals and help us all efficiently reach a common understanding.
19. Won't paying dues in the prior calendar year seriously impact my state's involvement in NAR's RPAC awards program since they will only count payments the actual year of the deposit, not the year on the dues bill?
A. Members who make RPAC contributions with their dues payment likely expect that both will reflect the same year. The growing popularity of matching RPAC contribution with dues billing means that most associations will collect the bulk of RPAC money in the fourth quarter, which is after usual awards deadline. AEC leadership is working with RPAC staff to survey associations on this issue and make suitable recommendations for change. (NOTE: this question is included because it has been asked. The problem exists whether the dues recommendation is passed or not, and is separate from the dues report.)
The 2% rebate proposal has no relationship to the NAR bylaws, but is rather a recommendation for a one-time incentive related to encouraging use of the NAR E-Commerce System.
On the recommendation to offer a 2% one-time rebate for use of NAR's E-Commerce system:
1. Why was the proposal made?
A. To provide an incentive for associations to adopt and benefit from NAR's e-commerce system. Allowing members to pay dues online can save enormous administrative costs to associations. NAR also has negotiated for lower cost credit card rates based on the volume of income in the system. Many local associations don't offer any credit card payment options now, and this is to encourage that member convenience option.
2. If the program is beneficial, then why couldn't it sell itself without the rebate?
A. Unfortunately, the rebate offer has obscured the fact that online dues payment simply makes good economic sense on its own merits. Nearly 370 Associations who have adopted the system can attest to savings in postage and collection, labor and handling costs, speed of collection, increased communication, and great credit card merchant fee rates, etc. By including a rebate, issues of "fairness," "extra funds being available" and "keep it coming" have replaced attention to the benefits of adopting e-commerce.
3. Does this replace the offer of NAR to pay the credit card fees for the NAR portion of the dues that are part of the NAR e-commerce system now?
A. No. As part of its contract for use of the NAR e-commerce system, NAR presently pays for the NAR portion of the credit card fee when the local association makes the decision to allow the member dues payment to transfer automatically (immediately) to NAR and the state association. Many state associations have made the same offer on the state portion of the fee.
4. Can I collect the money and then wire the dues payments to NAR's e-commerce account and receive the 2%?
A. No, the one-time rebate applies only if the local association uses the NAR e-commerce system, and agrees to allow the member dues payment made by credit card or electronic check to be transmitted to NAR and the state association automatically (their respective portion).
5. My association adopted NAR's e-commerce system two years ago. Will I get the benefit?
A. Yes, the one-time incentive is being offered to those already in the NAR e-commerce program.
6. My membership and financial records vendor does not have the capability of tying into the NAR e-commerce system, but we do accept credit cards manually. Am I eligible for the 2% offer?
A. No, the offer is meant to encourage use of dues payment through NAR e-commerce and not by manual credit card processing.
7. What happened to the proposal at the Board of Directors about eliminating the words "one-time" from the 2% proposal?
A. The issue was postponed prior to action on that amendment. However, the Finance Committee is sensitive to the issue that local associations may prefer no incentives for the program, rather than one that appears "unfair" to other local associations.
The recommended change to the LFRO Policy was adopted by the NAR Board of Directors at its meeting in November 2002. What is remaining is approving the specific bylaws language that will implement the already-approved policy.
On the recommendation to waive the dues of licensees in Limited Function Referral Offices where there is a REALTOR® owner or corporate officer:
1. What's the status of the proposal?
A. The NAR Board of Directors has adopted it, but since it is a bylaws change, it will require that the exact language be noticed in advance and approved by 2/3 of the voting Directors at the May meeting.
2. How long have there been LFROs able to get exemptions from the dues formula?
A. REALTORS® have never received an exemption under the dues formula for a LFRO owned and operated by the REALTOR®. REALTORS® can presently circumvent dues obligations through creative ownership structures in creating those non-member firms.
3. Why was the change proposed?
A. It became clear that enforcement of the LFRO policy "encouraged" brokers to move the ownership of their LFROs to another party on paper -- typically to a spouse, or to drop their membership rather than pay fees for the employees of that separate company. The new policy makes it clear that, while brokers may own a LFRO, it must be a separately licensed, separately incorporated company in which all licensees solely conduct referrals.
4. Won't companies use this as a place to move part-time agents or those who work only a few months out of the year?
A. If they are not presently doing that now, this isn't a change that would encourage that to happen The policy states that any REALTOR® who moves to a LFRO company and then later wants to reactivate as a REALTOR® must pay the full year's dues. That will ensure that games are not played between the two firms.
Companies primarily open LFROs as risk reduction for inactive agents who solely want to collect referral fees for transactions, and are required to maintain a license to collect that fee.
5. What happens with LFRO agents who were never REALTORS® but become referral agents right out of the licensing school and then later want to be REALTORS®?
A. They can still get prorated dues for their first year, as they were never REALTORS® and are not switching back and forth between an active brokerage firm and a LFRO.
6. Isn't this a lot of extra work for associations?
A. No, only DRs who own a LFRO are required to fill out a certification form to submit to the association. However, any association that presently has a large number of LFROs may find that there is considerable initial administration to getting the certification form completed. The actual certification form and process have not yet been fully developed, but will be presented as part of the bylaws change notice prior to the May meetings. Whether the LFRO certification form has to be re-signed year after year, or if it stays in effect for the life of the LFRO, is not yet determined.
7. How will associations handle arbitrations if LFRO agents aren't REALTORS®?
A. Since the LFRO firm will be owned and operated by a REALTOR® (principal), any disputes arising out of the operation of the LFRO will continue to be subject to arbitration pursuant to Article 17 of the Code of Ethics.
The issue below is not part of any proposal, but added to remove confusion.
Anniversary Date Billing
There is no proposal related to billing by anniversary date. It has been a pilot program in Baltimore at the request of that local association, but not part of any current recommendation and is not on the agenda for consideration by the NAR Board of Directors.
Next Steps
Each of the proposed Dues Policy recommendations should be considered and discussed as separate actions.
1. There will be a survey to collect local and state statistics and feedback;
2. The Q&A will be updated as needed;
3. A Work Group of AE's (representing large, medium and very small local associations) will review the statistical feedback and provide further input for presentation to the panel at the AE Institute;
4. A special session for feedback will be held at the AE Institute to include a moderated panel;
5. The Finance Committee may be asked to discuss the "fairness" concerns about the proposed 2% rebate for e-commerce adoption;
6. AEC will hold a special meeting at the AE Institute (separate from the panel) to provide, at their request, a recommendation to the Finance Committee and NAR Leadership about the merits of the proposals.
It is anticipated that the education and research requested by the NAR Board of Directors as part of their motions to postpone will be met through these steps. If there is or is not merit to any or all of the recommendations, that information will be communicated.
AEs are strongly encouraged to respond to the survey and provide specific feedback during the next months.
Send your questions and comments to: duesfeedback@realtors.org.
