I’ve been really, really busy with a project I’m getting ready to announce/roll out (speaking of which, if you’re an association executive or association leadership, I’d like to chat with you) but I couldn’t help but chime in on a minor storm in a teapot that Inman brewed up recently.
Predictably, Inman found large, large numbers, and just as predictably, the real estate commentariat on Facebook and elsewhere went semi-berserk.
Thing is, I have no real problems with NAR’s compensation schemes. But I do think quite a lot of folks are missing the forest for the trees. There are legitimate questions to be raised from digging through NAR’s Form 990, but how much NAR pays its executives and some of its volunteers is not one of them.
Let me explain, as briefly as possible, as I have to get back to work.
It’s natural that people’s attention get focused on the salaries and compensation that NAR employees and some of the past Presidents are collecting. Envy is one of the seven deadly sins, after all, and learning what someone earns is the key activator of envy. Just look at how we treat some of the multimillionaire athletes, while sort of glossing over the fact that they’re getting paid $25 million a year because their employer (i.e., the team and the owner) will likely make $200 million a year because of that superstar.
Sure, some of those numbers are very large for not a lot of hours worked. Maybe Steve Brown’s filing was an error, and it’s 18 hrs/week, not 1.8 hrs/week. And predictably, some of the commentariat went apeshit talking all kinds of smack about these compensation packages.
In fact, it even devolved into a bizarre feminist social-justice-warrior-type rant bemoaning how so many women work so hard to pay so few men. It’s bizarre since every one of those people are elected by the membership (or by their representatives, who are elected by the membership), which is largely made up of women.
If female Realtors don’t want to vote for another female Realtors running to be President, that’s the fault of Gary Thomas and Chris Polychron…how?
In any event, the reason I have zero problems with these compensation packages — or that of the senior executives like Dale Stinton — is that they’re the result of a fairly detailed process. NAR employs outside compensation consulting firms to go look at what leaders at other nonprofits and for-profit companies are making, and said consultant makes recommendations to a compensation committee, which none of the above people can be on, etc. etc.
Criticisms like “they’re overpaid!” are sort of nonsensical. Either the staff and/or volunteer leadership are providing a valuable service for NAR and its members, or they’re not.
If they are, then the compensation committee goes through a whole set of protocols to determine what’s reasonable. If they’re not providing valuable service, then it’s not the amount of compensation that’s the problem; it’s that they have a job at all that’s the problem.
Since NAR’s board and various governance groups believe that these individuals do provide value, it’s awfully hard to stand outside all of their decision-making processes and throw stones.
I realize some of you think that I was going to go off on NAR or some such; I have no idea why you thought that. I don’t dislike NAR — in fact, the exact opposite. I think NAR does some seriously wonderful stuff, and while I don’t hesitate to call NAR out when it deserves it, I’m going to be fair to everyone as best as I can be.
Having said that…there is a far, far bigger issue if you do care about things like the Form 990. And no one seems to even care remotely about that. Hence, forest for the trees.
Forest for the trees: Real head-scratcher expenses
Let’s put it this way. The four volunteer leaders above got paid a total of $1.1 million in 2014. The senior executive staff at NAR got paid a total of $6.86 million in 2014.
Altogether, that’s about $8 million. Not chump change, but not that big a deal for an organization whose total revenues for 2014 was $162 million. And as I said above, if those individuals delivered value to the organization in the view of the board of directors and the compensation committee, then they earned what they deserved.
The real head-scratcher are two major items that are somewhat buried in Form 990.
Advertising and promotion
First, you have $38.3 million in “Advertising and Promotion” in 2014. That’s 23 percent of total revenues of $162 million. It’s also five times larger than the senior executive and volunteer leadership compensation. It is, in fact, the largest single-expense line item in the 2014 Form 990, with salaries and wages coming in second at $36 million.
There are two reasons why this line item is a head-scratcher:
- NAR was created first and foremost as a lobbying organization, to represent the voice of the real estate industry to Washington, D.C. Yet, public policy expenses for 2014 totaled $19 million. Shouldn’t those two numbers be flipped?
- What exactly is NAR “advertising and promoting” for $38 million a year? The “Use A Realtor” campaigns? Given that in most markets in the U.S., everyone who is engaged in real estate brokerage is a Realtor…what exactly is being advertised? Sure, you might have a few non-Realtor licensees doing new home sales or apartment leasing in most markets (yes, I know there are a few markets, like the Seattle area, where the existence of a private MLS means many agents are not Realtors), but for the most part, every single consumer who lists his home or buys one is automatically using a Realtors.
In fact, study after study, panel after panel, firsthand experience after firsthand experience show time and again that consumers have no idea what Realtor means, how a Realtor is different from a mere licensee (even assuming a non-Realtor licensee could be found in their local area), and so on. So what exactly is NAR spending $38 million a year to do?
This is kind of like a local MLS having a director of marketing, despite the fact that the MLS is an organic monopoly with 100-percent market share. What the hell is that director of marketing actually marketing? And to whom? Every single person who could buy that service has already bought it!
This line-item might make sense if becoming a Realtor actually required something really above and beyond having a real estate license from the state authorities, such that only 20 percent or 30% percent of practitioners in a given market were Realtors. But as we’ve discussed many times on these pages, that simply ain’t the reality today. So what gives?
National Association of Realtor Business Activities Corporation
The other headscratcher is this entity: National Association of Realtor Business Activities Corporation, or NARBAC. What is this company?
It’s a Delaware corporation, created in 2005. According to this page, it only has two officers: Dale Stinton, as President, and John Pierpont as Secretary. Mr. Pierpont, of course, is the VP of Finance and Comptroller of NAR. The URL from that page suggests that this is Sentrilock (associationdatabase.org/sentrilock-finance-corporation), but is it?
Here’s why I’m wondering if NARBAC is Sentrilock: Schedule R of Form 990.
It’s a bit hard to understand, but you have to reference the “transaction type.” For our purposes, the relevant types are these:
- A = Receipt of interest, annuities, royalties, or rent from the entity
- B = Gift, Grant or Capital Contribution to the entity
- C = Gift, Grant or Capital Contribution from the entity
- D = Loans or loan guarantees to the entity
- L = Performances of Services or membership or fundraising for the entity
- S = Other transfer of cash or property from the entity
So this company, NARBAC — a wholly-owned corporate subsidiary of NAR — received $21.9 million in 2014 as a “gift, grant or capital contribution,” as well as $1 million in loan/loan guarantees from NAR, and some $90,000 in “performance of services” from NAR. That’s a total of $23 million from NAR to NARBAC.
In turn, NARBAC paid NAR $457,343 as “interest, annuities, royalties or rent.” It also gave $150,000 as a gift, grant or capital contribution to NAR, and a total of $1.3 million in cash as “other transfer” and $9.3 million of something which wasn’t cash but was “estimated fair value.”
The net to NAR is that it gave $11.7 million to NARBAC in 2014, taking into account this $9.3 million in whatever-it-got-at-estimated-fair-value. Absent that, and looking at just cash, NAR gave NARBAC $21 million in 2014.
If NARBAC is Sentrilock, a company that’s been around since 2003 and is one of two major electronic lockbox providers to the real estate industry, I’d have to think really hard about spinning it off already. I mean, a net drain of $11.7 million (and net cash drain of $21 million) in 2014 for a company that’s been around that long with a mature product that every REaltor needs and wants suggests that maybe it isn’t all that competitive with the likes of Supra.
Or is NARBAC all of NAR’s subsidiaries, including Sentrilock — and, of course, RPR (Realtors Property Resource)? And that $21 million in Gift, Grant or Capital Contribution is remarkably close to the $18.5 million that was in NAR’s 2013 budget for RPR plus the $3.4 million adjustment to the 2014 budget for RPR.
Now, I might have some issues with Upstream-as-currently-conceived, as you all know, but I like RPR. I did work for RPR back in the day, and think they’ve got some really sharp people there. But if you’re going to raise any eyebrows about NAR’s expenses, shouldn’t the $21 million spent/given/invested into NARBAC be one of those line-items? Especially since it’s more than “public policy expenses” by $2 million or so.
Taken together, those two head-scratcher items total about $60 million in 2014. That’s 40 percent of the total revenues of $162 million. The salaries and wages thing that people are jumping up and down about is about $8 million (the rest of those dollars are the hundreds of staffers at NAR).
Might be more interesting to ask more useful questions about NAR’s spending priorities given its core mission and core values than to rant about part-time jobs making $300,000 a year.
But then, going on about “overpaid” executives is probably more entertaining and takes less critical thinking so…I assume that will be the new sport in the industry over the next couple of weeks. Except for readers of this blog, who are far better informed than the average Jack and Diane Realtor…or so I hope.
OK, back to work!
Robert Hahn is the Managing Partner of 7DS Associates, a marketing, technology and strategy consultancy focusing on the real estate industry. Check out his personal blog, The Notorious R.O.B. or find him on Twitter:@robhahn.