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The largest brokerage in the Columbia, S.C., metro area has dropped its Realtor association membership, saying too many of its agents balked at paying $431 in annual dues in December 2010.

Russell & Jeffcoat Real Estate Inc.’s roughly 450 agents still have access to the multiple listing service (MLS) in their market, Consolidated MLS, which is independently operated by brokers and not Realtor-affiliated.

But Russell & Jeffcoat agents can no longer call themselves "Realtors" — a term trademarked by the National Association of Realtors — or take advantage of Realtor association member benefits like education and standardized forms and contracts.

The brokerage, formerly known as Russell & Jeffcoat Realtors, this month stripped "Realtor" from its name, substituting the more generic "Real Estate." Visitors to the company’s website are now invited to "find an agent" rather than a Realtor.

CEO Ron Roe said Russell & Jeffcoat withdrew from the Central Carolina Realtors Association (CCRA) because too many agents questioned the value of the services it provides.

Those services do not include operating the MLS. Brokers and agents in markets nationwide tend to view their MLS — often operated by or affiliated with a Realtor association — as an indispensable tool for marketing listings and cooperating with other brokers.

But it’s not unusual for agents to question the value of other services traditionally provided by Realtor associations, such as dispute mediation and arbitration, education and training, forms and lobbying.

Large brokerage companies often provide at least some of those services, such as training and forms, to their own agents.

"A company our size, we already have all the training they (the local and state Realtor associations) could offer," Roe said.

Russell & Jeffcoat adopted standardized ZipForms years ago, and has relied on the Realtor association for arbitration only three times in the last 10 years, he said.

Commission disputes are mediated by the MLS. While the Realtor association handles ethics charges leveled by one member against another, serious disputes inevitably land in court, Roe said.

Russell & Jeffcoat will still participate in mediation and arbitration with Realtor-affiliated brokers and agents, but it will be through a third party, he said.

"The association here does not have an MLS (and) the agents did not perceive the value" of other services it provided, Roe said.

About 150 of the roughly 370 companies that belong to Consolidated MLS have taken a similar view and are not Realtor-affiliated, he said.

NAR’s dues formula

Roe said he has "the utmost respect" for the National Association of Realtors, but that NAR’s "all or nothing" membership dues formula forced the brokerage’s hand.

The formula — which NAR refers to as the "designated Realtor" system — assesses annual dues on brokerages based on the number of licensed agents affiliated with the company.

Although Realtor-affiliated brokerages are credited when agents pay their dues on their own, the designated Realtor is responsible for making up the difference for those who do not.

"If you have 200 people who are not paying, that’s almost $100,000," Roe said. "It put the company in a very difficult position in December, when we’re trying to retain agents, that we have to become the bill collector."

He said Russell & Jeffcoat saw only two alternatives to dropping its Realtor affiliation.

"You really had two choices, neither of which we could do," Roe said. "We could pay for the people who couldn’t pay, or we could let the people who didn’t pay go. A lot of those who didn’t pay were our better producers."

If NAR lifted the burden on brokerages to collect or pay the dues of agents who don’t want to be Realtors, Roe said, "I would be the first person to get back in."

NAR Associate General Counsel Ralph Holmen said that the designated Realtor system is "based on the idea that the benefits of membership are proportionate to the size of the firm," and that there’s been no proposal to change the way dues are collected.

"The way to allocate dues fairly is to require large firms to pay more," Holmen said.

It’s not accurate to characterize the designated Realtor dues policy as an "all or nothing" requirement, he said, because agents at Realtor-affiliated brokerages are not members unless they pay their dues and agree to abide by the Realtor Code of Ethics.

But Holmen acknowledged that, because of the designated Realtor dues policy, Russell & Jeffcoat agents can no longer be members of their local, state and national Realtors association. The only option for agents who want to be Realtors is to move their license to another Realtor-affiliated brokerage.

Laura Derrick, president of the Central Carolina Realtors Association, said the local association "would love to change the (dues) system, but that would have to come from NAR, and they are not eager to do that."

Derrick said that in order to relieve members from the burden of having to pay dues in one fell swoop at the end of the year, CCRA is now offering to accept payments in three installments of $150 each — about $20 more than if dues are paid at once.

Losing Russell & Jeffcoat as a member brokerage reduces CCRA’s membership from about 1,300 members to 1,100, including affliate members, she said.

"What we’re finding is that not all of those agents have remained with Russell & Jeffcoat," she said.

In its latest nonprofit tax filing, CCRA — known legally as the Greater Columbia Association of Realtors — said its expenses exceeded revenue by $151,280 in 2009. The operating deficit reduced the association’s net assets or fund balances by 21 percent, to $562,632.

Derrick said the association’s finances are "very sound," but acknowledged that it’s offering a smaller salary as it hunts for a successor to Executive Vice President M.O.J. "Chip" Kreps.

"The main reason (for reducing the association executive’s salary) was the economy," Derrick said. "We looked at other associations, at what the average pay was, and he was certainly on the upper end."

Kreps, who left CCRA at the end of the year to run the board of Realtors in Savannah, Ga., referred questions about Russell & Jeffcoat’s departure to Nick Kremydas, CEO of the South Carolina Association of Realtors. Kremydas did not respond to requests for comment.

Derrick said CCRA is exploring what it would take to for the association to become an MLS operator. With Realtor associations in many markets looking to form regional MLSs, Derrick acknowledged that CCRA would be bucking that trend if it chose to take on that responsibility itself.

"We have one of the best MLS systems, (in terms of) technology, equipment," Derrick said of the broker-owned Consolidated MLS. "No agent complains about the service they provide."

But CCRA is in the process of gathering information from other associations "to find out what does it take" to operate an MLS, she said, and whether it would be more cost-effective for CCRA to provide MLS services to its members.

Broker reaction

In the Columbia market, reaction to Russell & Jeffcoat’s decision to drop its Realtor association membership was mixed. While brokers who are not Realtor-affiliated were supportive, others who support CCRA said Russell & Jeffcoat agents will continue to benefit from some services provided by the local, state and national Realtor associations — particularly lobbying — without having to pay for them.

Brenda Hanna, broker in charge at Columbia-based Prudential Midlands Real Estate, said she was with Russell & Jeffcoat for many years. During her time at the brokerage, she "was always encouraged to be a part of the association and to serve on committees" and was therefore "personally saddened by their decision."

To Hanna, one of the biggest benefits of belonging to a Realtor association is the oath taken by members to uphold the Realtor Code of Ethics, stay informed of issues affecting real estate, and provide services in the best interest of clients.

She said Realtor association lobbying efforts are also vital, and that "companies and agents that choose not to be (Realtor-affiliated) will still reap the rewards of any issues that are resolved by the influence our lobbyists, even though they are not participating in the financial support."

That sentiment was seconded by Morris Lyles, midtown office broker in charge for ERA Wilder Realty.

"I always think of a group I belong to as giving something to me, the agent, but also as me giving something to the group for a betterment of our industry and members," Lyles said. "Belonging to our association is something that you do as a supporter and an advocate for real estate and as a Realtor."

"It always hurts to have a large company leave any association, but I know that the opportunities I have received by being active in CCRA will always outweigh any dues or costs associated with the group," Lyles said.

While some companies "may make a business decision to exit the group," Lyles said, ERA Wilder "will continue to make the Realtors group a part of our business model."

Burton Fowles, director of sales for The Knight Co. LLC, said the company depends on forms provided by the Realtor association, which also offers "some good training classes. It’s voluntary — if you don’t go, you don’t benefit."

But all in all, Fowles said, "We aren’t exactly thrilled with the local board of Realtors around here, and we struggle each year with being a member."

Fowles said lobbying is one of the most important functions a Realtor association can provide, but rated CCRA’s efforts as "pretty poor." For the most part, The Knight Co. maintains its Realtor affiliation "so we can keep up with the other companies," he said.

Fowles thinks Russell & Jeffcoat probably had "a lot of agents who (were) struggling to pay" their Realtor dues, and dropped its affiliation because "they don’t want to lose agents."

Big brokerages, he said, tend to "make money charging fees to their agents — they nickle and dime them to death." By relieving their agents of the obligation to pay Realtor dues, "they can feel more comfortable about charging them transaction costs."

Bob Mandel — who as broker in charge at flat-fee company Real Estate Advocates provided testimony to the Justice Department in its suit against CMLS — said he also believes Russell & Jeffcoat made a business decision.

Agents shop around for the best brokerage to hang their license, and "throwing out the (Realtor fees) can help them recruit part-time agents," Mandel theorized.

Realtor associations offer designations that mean something to some agents and nothing to others, he said, and also offer products and services they may or may not use.

Lobbying may be the most valuable service Realtor associations provide, Mandel said, but "People can think (the association has) enough members, so let someone else pay for it."

Russell & Jeffcoat has "played it both ways," he said, founding CMLS years ago as an independent, non-Realtor-affiliated MLS while "wearing their Realtor pins."

Whit Suber, president and CEO of Columbia-based Home Shop Realty Co., takes an even dimmer view of NAR and its state and local associations.

NAR, Suber charged, "does absolutely nothing that positively impacts the bottom line for real estate agents or real estate companies."

For Russell & Jeffcoat, "there was no downside to dropping out" of the Realtor association, he said. Having reduced the burden on their agents to pay Realtor dues, Suber said, the company also "lessened the backlash" against its own fees, such as desk fees, transaction fees, and errors and omissions coverage.

Suber, whose firm belongs to CMLS but is not affiliated with NAR or its state and local associations, said he believes that "Without NAR control over local MLS boards, (the organization) would collapse in a matter of a few years."

Realtor associations and MLSs

Traditionally, it’s been Realtor associations, rather than brokers, that operate or control access to the MLS in most markets — a capability that critics say amounts to a restraint of trade in violation of antitrust law.

In 1976, the California Supreme Court ruled that that a Realtor association in affluent Marin County violated the state’s antitrust law by denying nonmembers access to its MLS.

The board’s practices posed "serious anticompetitive dangers both to licensed real estate salesmen and brokers and to consumers," the court said in a unanimous ruling. Limiting access to the MLS to association members, the court said, "seriously hampers the competitive effectiveness of nonmember licensed brokers and salesmen."

San Francisco antitrust attorney David Barry would later say that case — Marin County Board of Realtors Inc. v. Palsson — inspired him to do battle with numerous Realtor associations around the country, with the ultimate goal of forcing MLSs to open their doors to non-Realtors.

"One of the greatest sources of NAR’s power is the tie-in between multiple listing services and Realtor association membership," Barry wrote in a 2005 report he submitted to the Federal Trade Commission, "Nine Pillars of the Citadel."

In 84 percent of the country, real estate agents "cannot participate in the local multiple listing service (MLS) unless they purchase a Realtor membership," Barry claimed at the time.

In the same report, Barry decried NAR’s designated Realtor dues formula as a "price fixing conspiracy" between NAR and its state and local associations (Realtors must belong to all three).

Before NAR instituted the policy at its 1972 convention in Honolulu, Barry said, 31 percent of real estate agents were Realtors. Within a year, Barry claimed, 95 percent of real estate agents were Realtors.

Since its adoption, the designated Realtor dues policy "has been the subject of criticism by a small … highly vocal minority of members," former NAR General Counsel William D. North acknowledged in a paper defending the policy that NAR has reprinted many times over the years.

In the paper, "Going by the Book," North said the dues policy was approved by more than 75 percent of members, and based on principles laid out in "the authoritative work on the subject of association dues" at the time: "Association Dues Structures: Theory and Practice," published by the American Society of Association Executives in 1969.

The designated Realtor dues policy, in addition to providing a more equitable dues structure than the flat-rate structure previously in place, allows greater flexibility to changing conditions within the association or the economy, and provides accurate reporting through disclosure and verification, North said.

"Few amendments to the constitution and bylaws of the national association have received greater membership support," North wrote. "Few amendments have been the subject of more general and comprehensive discussion and debate prior to adoption."

NAR’s "Realtor pride" campaign, launched in 1998 to educate the public about the difference between a real estate agent and a Realtor, continues today, backed by a $35-per-member assessment.

Holmen said NAR does not track the percentage of licensed real estate agents and brokers who are also Realtors. But he noted that in areas where courts have ruled that MLSs must admit non-Realtors, membership has not drastically declined.

Although many MLSs have dropped requirements that participants be Realtor association members, "Experience has shown that’s not as important as people thought it was," Holmen said. "You can’t say there’s been no effect, but there’s been very little effect" on Realtor membership.

Source: National Association of Realtors

While California’s highest court has ruled that tying access to the MLS to membership in a Realtor association violates state antitrust law, the "open MLS" movement has failed to catch on to the extent Barry envisioned. That’s due at least in part to uncertainty surrounding the application of federal antitrust laws.

"We have a situation where, from a federal antitrust law perspective, we have sort of a divided country," said Brian Larson, an attorney and business consultant for MLSs, trade associations and other companies.

A number of large MLSs have voluntarily dropped requirements that participants be Realtors after being sued, or because of the threat of litigation. But those MLSs "don’t publicize (the fact that they are open) much because they don’t want to encourage people to join as non-Realtors," Larson said.

In 1991, the 11th Circuit U.S. Court of Appeals ruled in Thompson v. Metropolitan Multi-List Inc. that tying MLS access and association membership violated federal antitrust law.

But that decision — which only applies to Alabama, Georgia and Florida — depended in part on a Realtor association’s claim that it was losing members to a rival association that acquired Atlanta’s MLS and operated it as a subsidiary.

On numerous other occasions, state and federal courts have backed the right of Realtor associations to limit MLS access to Realtors.

In 2006, the 7th Circuit Court of Appeals — which has jurisdiction over Illinois, Indiana Wisconsin — stood by a lower court ruling that a broker who sought access to the MLS without becoming a Realtor association member hadn’t demonstrated that tying hindered competition.

The U.S. Supreme Court declined to review the decision in that case, Reifert v. South Central Wisconsin MLS, in which Barry represented broker Jay Reifert.

Barry also went down to defeat when he filed federal court challenges of tying practices in Kentucky, Florida and Washington state on behalf of clients.

The California Association of Realtors filed a malicious prosecution suit against Barry in 2005, and he’s largely disappeared from the real estate antitrust scene.

In Columbia, Consolidated MLS is operating under the terms of a 2009 settlement with the Department of Justice, which had accused the MLS of attempting to exclude discount and "fee-for-service" brokers.

The settlement, which is in force for 10 years, protects the right of CMLS member brokers to enter into "exclusive agency" contracts with sellers. The settlement also requires the MLS to admit any broker who is licensed in South Carolina.

The Russell & Jeffcoat homepage, above, no longer identifies the company as "Russell & Jeffcoat Realtors." A snapshot taken on Jan. 13, below, shows the old company logo.

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