Serving AAR As An Officer Or Director

updated January 2015

The Arizona Association of REALTORS® (“AAR”) was incorporated in 1953 as a 501(c)(6) non-profit corporation. As a non-profit corporation, AAR is governed by its Articles of Incorporation, Bylaws, Policies and Official Statements and the Arizona Non-profit Corporation Act (“NCA”), A.R.S. §10-3101 et. seq.¹   These governing documents and Arizona law define the scope of the duties and liabilities associated with serving as an AAR officer or director.

AAR Governing Documents

The AAR Articles of Incorporation provide that:

  • Management and control of AAR is vested in the Board of Directors.
  • The directors and any person that serves on a board or council in an advisory capacity shall not be subject to suit for acts or omissions made in good faith within the scope of their official capacity.
  • The directors and any person that serves on a board or council in an advisory capacity shall not be subject to personal liability for breach of fiduciary duty to maximum extent provided by law.
  • AAR shall indemnify any person who incurs expenses by reason of the fact that the person is or was acting in their capacity as an AAR officer, director, employee or agent to the maximum extent provided by law.

The AAR Bylaws provide that:

  • AAR business is managed by the Board of Directors and the Executive Committee. (The AAR Executive Committee officers are President, President-elect, First Vice President, Treasurer and five Regional Vice Presidents.)
  • Every officer shall be indemnified against all expenses and liabilities reasonably incurred in conjunction with any proceeding to which that officer is involved by reason of being or having been an AAR officer, except in such cases wherein the officer is adjudged guilty of willful misfeasance or malfeasance in the performance of such officer’s duties or shall have acted in such a manner as has exceeded such officer’s authority so to act.

The AAR Policy Statements and Official Statements:

  • Contain guidelines for internal AAR operations.
  • Require the Executive Committee to ensure that AAR is strategically focused, monitor but avoid conducting day-to-day AAR operations, conduct business in a timely and honest fashion, and observe the internal and external chain-of- command.

The Arizona Non-profit Corporation Act (“NCA”)

The NCA sets forth the standards of conduct for officers and directors of a non-profit corporation. The NCA provides that an officer or director’s duties must be discharged:

  • In good faith.
  • With the care an ordinarily prudent person in a like position would exercise under similar circumstances.
  • In a manner the director reasonably believes to be in the best interests of the corporation.

See, A.R.S. 10-3830 (directors); A.R.S. 10-3842 (officers).

In discharging these duties, an officer or director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by:

  • Officers or employees of AAR whom the officer or director reasonably believes are reliable and competent in the matters presented.
  • Legal counsel, public accountants or other persons as to matters the officer or director reasonably believes are within the person’s professional or expert competence.
  • A committee of, or appointed by, the Board of Directors of which the director is not a member if the director reasonably believes the committee merits confidence.

The NCA also provides that a director is presumed in all cases to have acted, failed to act or otherwise discharged such director’s duties in good faith, with prudent care and in the corporation’s best interests. A person challenging a director’s action, failure to act or other discharge of duties has the burden to establish by clear and convincing evidence facts rebutting this presumption. See, A.R.S. 10-3830(D) (directors); A.R.S. 10-3842(D) (officers).

Frequently Asked Questions

Q: Can I be held personally liable for actions taken as an AAR officer or director?

AAAR officers and directors are largely shielded from personal civil liability for actions taken as AAR officers or directors provided that they act in good faith and within the scope of their official duties. However, an officer or director can be held personally liable in certain circumstances. For example, an officer or director may be held personally liable for directly injuring someone or intentionally taking a fraudulent or illegal action.

Q: If I am named in a lawsuit, will AAR reimburse me for my expenses?

A:  As an officer or director, you have a right to be reimbursed for reasonable expenses arising because of a lawsuit. This obligation to reimburse you is referred to as “indemnification.” This indemnification is provided for through both the NCA and the AAR governing documents. See, A.R.S. §10-3851 – A.R.S. §10-3852.

The NCA provides that a corporation may indemnify an individual made a party to a proceeding because the individual is or was an officer or director if:

  • The individual’s conduct was in good faith.
  • The individual reasonably believed:
    • In the case of conduct in an official capacity with the corporation, that the conduct was in its best interests.
    • In all other cases, that the conduct was at least not opposed to its best interests.
  • In the case of any criminal proceedings, the individual had no reasonable cause to believe the conduct was unlawful.

Q: Are there any limits to the duty to reimburse me for expenses incurred in a lawsuit?

AYes. For example, AAR may not indemnify an officer or director:

  • In connection with a proceeding in which the officer or director was adjudged liable to the corporation.
  • In connection with any other proceeding in which the officer or director was adjudged liable on the basis that the officer or director improperly received personal benefit.
  • In a case in which the officer or director is adjudged guilty of willful misfeasance or malfeasance.
  • In a case in which the officer or director exceeded their authority to act.

Q: Does AAR purchase E&O insurance?

A:  Yes. AAR and its officers and directors are insured by the National Association of REALTORS® Association Professional Liability Insurance Policy. This policy generally covers claims relating to negligent acts, errors, omissions, misstatements, misleading statements or breaches of fiduciary duty, as described in the policy. The policy also includes a number of exceptions. You may want to explore whether an individual personal umbrella policy may provide additional protection.

Q: Should I be concerned about conflicts of interest?

AConflicts of interest are addressed in the NCA (A.R.S. §10-3860) and in the AAR Policy Statements and Official Statements. AAR Policy P.9 provides that AAR’s decision-making bodies, including officers and directors, should not use their position with the association to further their private interests and should avoid placing themselves in situations where their personal interests may conflict with the interests of the association.

Officers and directors have a conflict of interest on an issue when:

  • The issue involves a business providing products or services to AAR in which the officer or director or a member of an officer or director’s immediate family is a principal, partner or corporate officer.
  • The issue is one in which that officer or director or a member of an officer or director’s immediate family has a financial interest involving money, employment, investments, credit or contractual rights.

Officers and directors have a conflict of interest in a transaction if they know at the time of commitment that they or a related person:

  • Is a party to the transaction.
  • Has a beneficial interest in, or is so closely linked to, the transaction and of such financial significance to the director, officer or related person that the interest would reasonably be expected to exert an influence on the judgment of the director or officer if called to vote on the transaction.

Q: What should I do if I have a conflict of interest?

AAAR Policy requires that you immediately disclose the interest at the outset of any discussions and not participate in the discussion relating to that issue other than to respond to questions. Further, you may not vote on the issue and should not be present when the vote on the issue is taken.

TIPS FOR THOSE SERVING AS AN AAR OFFICER OR DIRECTOR

  • Act in good faith and in AAR’s best interests.
  • Be prepared for meetings.
  • Review advance materials.
  • Ask questions and participate in discussions.
  • Do not use your position to further private interests.
  • Avoid conflicts of interest.

This article provides only an initial overview of a very complex subject. The information contained herein is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.

Michelle is Chief Executive Officer of the Arizona Association of REALTORS® (“AAR”) and a State Bar of Arizona board certified real estate specialist.


¹ The legal principles discussed herein are generally applicable to serving as an officer or director of a local association formed as a non-profit corporation.

Board of Directors Responsibilities and Authority

Bylaws Citations

ARTICLE VI

Section 4 – The Board of Directors shall elect and remove AAR officers and National Director Nominees, approve the annual budget and dues, approve withdrawals from the Operating or Capital Reserves, other than as noted in Article IV, Sections 1 and 2, and amend AAR’s Bylaws and Policies except Professional Standards policies, which may be approved by AAR’s Executive Committee. AAR’s accounts shall be audited annually by a certified public accountant.

Section 5 – AAR shall conduct Directors’ meetings no less than two (2) times annually. Special meetings of the Board of Directors may be called by the President or by any fifteen (15) Directors. Written notice of a special meeting shall be sent by mail to all Directors at least ten (10) days before the date of the meeting or by electronic mail at least five (5) days before the date of the meeting. Directors may not participate in Directors’ meetings by agent, representative or proxy, except alternates for quota Directors may be designated in the absence of a quota Director without notice at Board of Directors meetings, however, said alternate shall register at Directors’ attendance desk and provide verification by an officer of said Member Board prior to voting.

Section 7 – A quorum of the Board of Directors shall consist of Directors constituting at least one-third (?) of the total number of AAR Directors of which there must be representatives from at least one-third (?) of the total number of Member Boards present.

Section 8 – The latest available financial statements reflecting AAR’s financial status shall be mailed or otherwise distributed to each voting Director at least fifteen (15) days prior to the scheduled date of each regular meeting of the Board of Directors. A copy of the proposed annual budget shall be mailed or otherwise distributed to each voting Director at least fifteen (15) days prior to the scheduled date of the Directors Meeting at which the annual budget shall be submitted for adoption.

Section 9 – A Director or an Officer other than the CEO may be removed from office in the following manner:

a. A petition requiring the removal of an Officer or Director and signed by not less than thirty-three and one-third percent (33? %) of the voting Directors shall be filed with the President, or if the President is the subject of the petition, with the next-ranking Officer, and shall specifically set forth the reasons the subject thereof is to be removed from further service.

b. Not less than twenty (20) days nor more than thirty (30) days after the petition is filed, a special meeting of the voting members of the Board of Directors shall be held, and the sole business of the meeting shall be to consider the charges against the Officer or Director who is the subject of the petition and to render a decision on such petition.

c. Previous notice by mail of the special meeting shall be mailed or otherwise distributed to all voting members of the Board of Directors at least ten (10) days prior to the meeting and shall be conducted by the President unless the President’s continued service in office is being considered at the meeting. In such case, the next-ranking Officer will conduct the meeting. Provided a quorum is present, a two-thirds (?) vote of the Directors present, and voting by written ballot shall be required for removal from the office.

d. The Region from which the RVP was nominated and a manner agreed upon within that Region shall handle removal of an RVP.

 

Board Of Directors Responsibilities/Authority

Policy Citations

A.  LEADERSHIP/COMMITTEES

A.4 – BOD VOTING  

Vote counts for officer and National Director elections shall not be given verbally; however, exact counts will be retained by AAR for thirty (30) days following the date of the election for review upon request by any AAR member.

A.8 – CONFLICT OF INTEREST

Members of AAR’s decision making bodies, including, but not limited to, the Executive Committee, Board of Directors, Primary Committees, workgroups and other committees (hereinafter “Committee/Director Members”) should not use their position with AAR to further their private interests. Committee/Director Members should avoid placing themselves in situations where their personal interests may conflict with the interests of AAR and should at all times avoid the appearance of conflict of interest. AAR duties should be performed in good faith and for the benefit of AAR.

Committee/Director Members will be considered to have a conflict of interest if the interest would constitute a conflicting interest pursuant to the Arizona Non-profit Corporation Act when:

  1. the issue involves a business providing products or services to AAR in which the Committee/Director Member or a related person is a principal, partner or corporate officer, director, agent or employee.
  2. the issue is one in which that Committee/Director Member or a related person has a beneficial interest involving money, employment, investments, credit or contractual rights or is so closely linked to a transaction of such financial significance to the Committee/Director or a related person that the interest would reasonably be expected to exert an influence on the Committee/Director’s judgment if called on to vote on the transaction. “Related person” shall have the same meaning as defined in the Arizona Non-profit Corporation Act.

Committee/Director Members with a conflict of interest shall immediately disclose the existence and the nature of the conflict at the outset of any discussions by a decision making body pertaining to the issue as well as all facts reasonably material to a judgment about an issue. Such Committee/Director Members may not participate in the discussion relating to that issue other than to respond to questions asked of them by other Committee/Director Members of the body. Committee/Director Members with a conflict of interest may not vote on any issue in which they have a conflict of interest, and should not be present when the vote on the issue is taken.

A.9 ELECTRONIC TRANSACTION OF BUSINESS

To the fullest extent permitted by law, the Board of Directors, Executive Committee, Primary Committees and workgroups may conduct business by electronic means.

A.12 – ALCOHOLIC BEVERAGES

AAR will not provide alcoholic beverages in the AAR Suite or room at State meetings and National meetings. Alcohol will be served only at supervised cash bar or limited “host” drink functions.

A.13 WEAPONS

No person shall bring any firearm or other weapon, or any other article or instrument that could reasonably be deemed dangerous or harmful, into any AAR meeting.

B.  FINANCIAL

B.2 – AMENDMENTS TO APPROVED BUDGET; REALLOCATION FLEXIBILITY       

Proposals to amend the AAR approved budget shall be submitted to the Executive Committee for approval. The Executive Committee may, on its own authority, approve aggregate budget amendments up to two and one-half percent (2.5%) of the approved annual budget.

The Executive Committee shall act as the finance committee and may reallocate approved, but unutilized expense(s) to be used for another program(s), product(s) and expense(s).  Reallocations of approved, but unutilized expense(s) by the Executive Committee shall be reported to the Board of Directors at their next scheduled meeting.

B.6 – OPERATING AND RESERVE FUNDS INVESTMENT POLICY 

All AAR Funds not immediately required shall be invested by the CEO and Controller at the direction of the Treasurer and Executive Committee. Permitted investments shall include: Obligations of the US Treasury; obligations of an agency of the US Government; obligations of and obligations fully guaranteed by any of the fifty (50) states of the United States of America; Auction Preferred Stock (APS) and/or Auction Rate Certificates (ARC) and/or Variable Rate Demand Obligations (VRDO) and corporate bonds with an investment grade rating by a nationally recognized rating service. Funds invested in certificates of deposit shall not exceed the total amount insured, including interest earned to maturity, so that a guarantee is made of return of principal and interest.

With the approval of the Executive Committee, permitted investments shall also include up to twenty percent (20%) of the Capital Reserve, up to twenty percent (20%) of the Strategic Initiatives Reserve and up to twenty percent (20%) of the Issues Mobilization Fund in long term growth assets with equity exposure (such as stocks, stock mutual funds and exchange traded funds). The Capital Reserve, Strategic Initiatives Reserve and the Issues Mobilization Fund shall be analyzed annually taking into consideration past disbursements and anticipated future disbursements. Up to twenty percent (20%) of the funds in these accounts that are deemed not to be needed for their intended purpose for a period of five (5) years or greater shall be eligible to be invested in long term growth assets with equity exposure. All investments in long term growth assets with equity exposure shall be reported to the Board of Directors at the next scheduled meeting.

B.7 – CONTRACTS AND ENCUMBRANCES

The President and/or CEO shall be the only individual(s) authorized to enter into contracts or agreements which incur financial or other liabilities to AAR. All contracts not authorized through action of the Executive Committee, Board of Directors or through the budgeting process in excess of ten thousand dollars ($10,000) shall be presented to the Executive Committee for approval prior to execution.

D.  LEGAL/STANDARD FORMS

D.1 – ACCESS TO LEGAL COUNSEL

The AAR General Counsel and Associate Counsel provide support to AAR’s CEO, Executive Committee, Board of Directors, and Primary Committees. Legal support to Member Boards and/or members is prohibited unless approved by the CEO.

D.2 – Legal Assistance

One of the purposes of the Operating Reserve fund is to provide legal assistance to Boards and/or REALTORS® where litigation arises that can affect other REALTORS®, Member Boards or AAR. In such instances, funds may be used to defray costs and legal fees involved in such litigation. In addition, funds may be used for any litigation involving AAR including covering the deductible amount of AAR’s errors and omissions coverage. No funds may be allocated or utilized to pay or apply to any judgment rendered against any party other than AAR for the payment of damages or fines.

Any request for legal assistance by a REALTOR® must be first supported by his Member Board. All requests, whether from a REALTOR® or a Member Board, must be submitted in writing to the CEO, setting forth the purposes of the request in as much detail as possible prior to any action being undertaken.

The Executive Committee, with AAR General Counsel present, shall hear and decide on all requests for legal assistance. No funds may be expended without the Executive Committee making determination that the matter is of such nature as to adversely affect real estate licensees and/or private property rights within the state of Arizona. The Executive Committee may decide that all costs and legal fees, or a portion thereof, be paid from the Reserve Fund.

The President shall, at the next meeting of the Board of Directors, following a commitment for the use of funds for legal assistance, report to the Directors as to the amount of monies committed or expended. The President shall not discuss at a regular Directors’ meeting the nature of the individual case, the REALTOR® or the Member Board involved. Any Director may, however, review the file on the matter at AAR in the presence of the CEO.

In the event any REALTOR® or Member Board is dissatisfied with the action of the Executive Committee with regard to his or its request, the REALTOR® or Member Board may appear before the Board of Directors and a two-thirds (?) vote of the Board of Directors present and voting may reverse or amend the action of the Executive Committee.

D.3 – STANDARD FORMS         

The Executive Committee or Board of Directors shall approve all form content and format, new or revised, prior to distribution for member use. Prior to substantive revision of any existing form being released, the revised form shall be circulated for comment from experts in the field, all Member Boards, and any appropriate Institutes, Societies or Councils. New or revised forms shall be released on or about February 1, June 1 and October 1 unless law or regulation mandates earlier release.

AAR grants permission to each of its Member Boards to use the AAR member benefit electronic forms software to print each of AAR’s standard forms provided  that the Member Board executes a license agreement with AAR setting forth the terms and conditions of such agreement.

E.  LEGISLATIVE/POLITICAL

E.1 ANNUAL LEGISLATIVE POLICIES

The Legislative and Political Affairs Primary Committee is responsible to recommend subsequent year’s legislative policies to the Board of Directors for approval. The Primary Committee may use any means to obtain member input; however, the Primary Committee, by its own motion(s), will present the final recommended Legislative Policies to the Executive Committee for its recommendation to the Board of Directors.

G.  CEO/INTERNAL

G.9 – SOLICITATIONS AND DONATIONS

All solicitations for donations and funding of non-AAR projects must be approved by the Executive Committee or Board of Directors. Any requested funds must be accompanied by budget when submitted.

G.11HARASSMENT

AAR fully supports the rights of all its members and employees to work in an environment free from harassment. Harassment means any verbal or physical conduct including threatening or obscene language, unwelcome sexual advances, stalking, actions including strikes, shoves, kicks or other similar physical contacts, or threats to do the same, or any other with the purpose or effect of unreasonably interfering with an individual’s work performance by creating a hostile, intimidating, or offensive work environment. Any member or employee who believes that he or she has been the subject of harassment should follow the complaint procedures set forth in AAR’s Employee Policy and Procedure Manual. Pending the investigation of any complaint, the individual named in the complaint may be asked not to participate in AAR functions until the matter is resolved.

Arizona REALTORS® Governing Documents

Continuing Education Requirements

Continuing Education Hours Do I Need?

You must complete 24 hours of approved continuing education every two years to renew a real estate license. Cemetery and membership camping licenses do not require continuing education credit for renewal.
Of the 24 hours required for renewal, you must obtain three hours credit in each of the following subjects:

  • Agency Law
  • Contract Law
  • Commissioner’s Standards
  • Real Estate Legal Issues
  • Fair Housing
  • Disclosure

The remaining six hours may be in any of these subjects or “general” courses.

About Us

Arizona Association of REALTORS® (AAR) is the largest trade association in Arizona, representing more than 40,000+ Arizona REALTORS® subscribing to the strict Code of Ethics outlined by the NATIONAL ASSOCIATION OF REALTORS® (NAR). In addition to providing a number of benefits and services, AAR is dedicated to the protection of private property rights and best interests of Arizona REALTORS® in legislation and strives to provide the best – most current – legal information and education available.

Members are active real estate licensees which includes professionals from all areas of real estate – residential, commercial, property management, land, appraisal, relocation and more. AAR’s membership is made up of licensees from Arizona’s 20 local associations, that are also members of NAR.

Contact Information

Arizona Association of REALTORS®
255 East Osborn Road, Suite 200
Phoenix, Arizona 85012
Phone: 602-248-7787 or 800-426-7274
Fax: 602-351-2474
Email: aarwebmaster@aaronline.com
Media Contacts: click here

The REALTOR®’s Dues Formula – A Fair Share

The delegates to the 1972 Convention of the National Association of REALTOR®, meeting in Honolulu, Hawaii, overwhelmingly approved a new dues formula for computing the dues of REALTOR® Members. This dues formula called for assessment of REALTOR® dues computed on the basis of the size of the REALTOR®’s organization, i.e., on the number of individuals licensed with the REALTOR®.

The number of individuals licensed with the REALTOR® was selected as the most accurate and equitable method of assessing dues proportional to the membership benefits and services accruing to the REALTOR® and through the REALTOR® to all individuals licensed with the REALTOR® in the practice of real estate. Other possible methods of computing the REALTOR®’s dues that were considered included the sales volume of the REALTOR®’s firm, the number of offices, and other such measures. However, after extensive and careful deliberation, it was determined that the number of individuals licensed with the REALTOR® was the fairest measure of benefits accruing to the REALTOR® from his Membership, and this was selected as the foundation for Membership dues in the Association.

At the same time, two contingent provisions were adopted and approved as a part of the REALTOR® dues formula.

First, it was recognized that if some or all of the individuals licensed with the REALTOR® also held REALTOR® or REALTOR-ASSOCIATE® Membership, and paid dues for such Membership, it would not be equitable to also charge the REALTOR® in respect to such persons; so a credit offset against the REALTOR®’s dues obligation was provided for each individual licensed with the REALTOR® who voluntarily held REALTOR® or REALTOR-ASSOCIATE® Membership as a matter of personal option and election.

Secondly, in respect to any given firm comprised of more than one REALTOR® principal, it was specified that only one (1) of the principals designated by the firm would be charged on the basis of the size formula. All other principals of the firm would be charged only a base amount of dues as determined and not charged any dues in respect to the number of individuals licensed with the firm.

Inasmuch as only one REALTOR® principal designated by the firm was obligated to pay dues based on the size of the firm, the size formula adopted has also been referred to as the “designated REALTOR® dues formula.” Since the designated REALTOR® is given a credit against his dues obligation for each individual licensed with him who holds REALTOR® or REALTOR-ASSOCIATE® Membership, his dues are then ultimately computed on the basis of

1. A base amount as determined by the local Board
2. A further amount as determined times the number of individuals licensed with the REALTOR® who do not hold Membership in the Board.

Thus, in the final analysis, the designated REALTOR® pays dues (his own personal dues) for Membership benefits and services received by the REALTOR® which are proportional to the number of such persons affiliated with the REALTOR® who benefit from his REALTOR® Membership and its benefits and services, but do not personally hold Membership and pay no dues.

It must be clearly understood that the designated REALTOR® is not paying dues for individuals affiliated with him who elect not to be Board Members. They are not Board Members and therefore have no dues payable to the Board. Any benefits or Board services that such licensees realize accrue to them solely through their relationship with the designated REALTOR® and are not provided to them directly by the Board. Rather, the REALTOR® pays his dues (his own and not the dues paid for others) as computed on the number of individuals licensed with him, but who are not Members of the Board.

It should be pointed out that this formula was adopted by the National Association in 1972 for REALTOR® Membership in the National Association and retained as the basis for REALTOR® Membership in the National Association until November 1978, when the National Association revised its Bylaws in respect to membership dues. In November, 1978, the National Association revised Article II of its Bylaws to require payment of dues only by Member Boards.

The Bylaws as revised do not provide for any dues payable directly by REALTORS® and REALTOR®-ASSOCIATEs to the National Association. Rather, when a Member Board has paid its Member Board dues, the REALTOR® and REALTOR®-ASSOCIATE Members of the Board as reported by the Board are automatically deemed to be REALTORS® and REALTOR®-ASSOCIATEs of the National Association. (It is recommended to State Associations that they have similar dues requirements of member Boards only, but this is a determination of the State Association and is determined as stated by their respective Bylaws.)

However, even though the National Association revised its Bylaws in 1978 to require dues of Member Boards only, the dues obligation of Member Boards is computed upon “…the number of REALTOR® Members of the Board and the number of individuals licensed with REALTOR® Members by the Board who are not themselves REALTOR® Members.” The phrase, … the number of individuals licensed with REALTOR® Members of the Board and who are not themselves REALTOR® Members” includes both REALTOR-ASSOCIATE®s and those individuals licensed with REALTOR® Members of the Board who are not Board Members. In other words, the Member Board dues obligation remains based upon the premise that the benefits and services which flow from the National Association to REALTORS® and those affiliated with them is most equitably measured by size of the REALTOR®’s organization (number of individuals licensed with the REALTOR® ).

In turn, most Member Boards have adopted and utilized the designated REALTOR® dues formula (i.e., the size formula) on the local level and look to the designated REALTOR® for payment of dues calculated on the number of licensees affiliated with the REALTOR®, with credit offsets for all affiliated licensees who hold Board Membership. The dues provision of the Board Bylaws is applicable, of course, only to those licensees affiliated with the REALTOR® within the jurisdiction of the Board, and is applicable in respect of those individuals licensed with the REALTOR® in any real estate firm in which the REALTOR® holds an ownership interest, provided that such dues obligation does not duplicate dues paid by another principal (designated REALTOR®) of any such firm.

To identify clearly the intent of the National Association Bylaws with respect to the dues obligation of the Member Board, and in turn to clarify the basis upon which the Member Board might appropriately establish its dues provisions for designated REALTOR® Members of the Board, the National Association amended Article II, Section 1 (B) of the Bylaws of the National Association to contain the following provision:

“An individual shall be deemed to be licensed with a REALTOR® if the license of the individual is held by a REALTOR® or by an entity in which the REALTOR® has a direct or indirect ownership interest and which is engaged in soliciting and/or referring clients or customers to the REALTOR® for consideration on a substantially exclusive basis, provided that such licensee is now otherwise included in the computation of dues payable by the principal, partner, or corporate officer of the entity.”

Member Boards are advised that with respect to “direct ownership interest” specified above, this should be self-explanatory. It is ownership, in whole or in part, by the REALTOR®, as the principal or a principal of a real estate firm. The term, “indirect ownership” would include ownership held through a “holding company,” a “trust,” or other legal device which may provide effective ownership control.

The dues obligation does not apply to situations in which there is no ownership relation, direct or indirect, even though a beneficial interest or benefit may exist.

If a question should arise as to the application and enforcement of the local Board dues with respect to the dues obligation of a designated REALTOR® as related to a real estate firm, the following is recommended:

1. Invite the REALTOR® to attend a meeting of the Membership Committee, and in a friendly, constructive atmosphere, ask the REALTOR® to explain his relationship to any real estate firm about which the question has arisen.

2. After a firsthand discussion with the REALTOR®, determine and explain the REALTOR®’s dues obligation. If he agrees, the question is resolved. If he does not agree, the matter should be reviewed by Board Legal Counsel prior to recommendation of the Membership Committee to the Board of Directors. Board Legal Counsel should specifically review the dues provision of the Board Bylaws to ensure that they support any recommendation to be made to the Directors.

The delegates to the 1972 Convention of the National Association of REALTOR®, meeting in Honolulu, Hawaii, overwhelmingly approved a new dues formula for computing the dues of REALTOR® Members. This dues formula called for assessment of REALTOR® dues computed on the basis of the size of the REALTOR®’s organization, i.e., on the number of individuals licensed with the REALTOR®.

The number of individuals licensed with the REALTOR® was selected as the most accurate and equitable method of assessing dues proportional to the membership benefits and services accruing to the REALTOR® and through the REALTOR® to all individuals licensed with the REALTOR® in the practice of real estate. Other possible methods of computing the REALTOR®’s dues that were considered included the sales volume of the REALTOR®’s firm, the number of offices, and other such measures. However, after extensive and careful deliberation, it was determined that the number of individuals licensed with the REALTOR® was the fairest measure of benefits accruing to the REALTOR® from his Membership, and this was selected as the foundation for Membership dues in the Association.

At the same time, two contingent provisions were adopted and approved as a part of the REALTOR® dues formula.

First, it was recognized that if some or all of the individuals licensed with the REALTOR® also held REALTOR® or REALTOR-ASSOCIATE® Membership, and paid dues for such Membership, it would not be equitable to also charge the REALTOR® in respect to such persons; so a credit offset against the REALTOR®’s dues obligation was provided for each individual licensed with the REALTOR® who voluntarily held REALTOR® or REALTOR-ASSOCIATE® Membership as a matter of personal option and election.

Secondly, in respect to any given firm comprised of more than one REALTOR® principal, it was specified that only one (1) of the principals designated by the firm would be charged on the basis of the size formula. All other principals of the firm would be charged only a base amount of dues as determined and not charged any dues in respect to the number of individuals licensed with the firm.

Inasmuch as only one REALTOR® principal designated by the firm was obligated to pay dues based on the size of the firm, the size formula adopted has also been referred to as the “designated REALTOR® dues formula.” Since the designated REALTOR® is given a credit against his dues obligation for each individual licensed with him who holds REALTOR® or REALTOR-ASSOCIATE® Membership, his dues are then ultimately computed on the basis of

1. A base amount as determined by the local Board
2. A further amount as determined times the number of individuals licensed with the REALTOR® who do not hold Membership in the Board.

Thus, in the final analysis, the designated REALTOR® pays dues (his own personal dues) for Membership benefits and services received by the REALTOR® which are proportional to the number of such persons affiliated with the REALTOR® who benefit from his REALTOR® Membership and its benefits and services, but do not personally hold Membership and pay no dues.

It must be clearly understood that the designated REALTOR® is not paying dues for individuals affiliated with him who elect not to be Board Members. They are not Board Members and therefore have no dues payable to the Board. Any benefits or Board services that such licensees realize accrue to them solely through their relationship with the designated REALTOR® and are not provided to them directly by the Board. Rather, the REALTOR® pays his dues (his own and not the dues paid for others) as computed on the number of individuals licensed with him, but who are not Members of the Board.

It should be pointed out that this formula was adopted by the National Association in 1972 for REALTOR® Membership in the National Association and retained as the basis for REALTOR® Membership in the National Association until November 1978, when the National Association revised its Bylaws in respect to membership dues. In November, 1978, the National Association revised Article II of its Bylaws to require payment of dues only by Member Boards.

The Bylaws as revised do not provide for any dues payable directly by REALTORS® and REALTOR® -ASSOCIATEs to the National Association. Rather, when a Member Board has paid its Member Board dues, the REALTOR® and REALTOR®-ASSOCIATE Members of the Board as reported by the Board are automatically deemed to be REALTORS® and REALTOR®-ASSOCIATEs of the National Association. (It is recommended to State Associations that they have similar dues requirements of member Boards only, but this is a determination of the State Association and is determined as stated by their respective Bylaws.)

However, even though the National Association revised its Bylaws in 1978 to require dues of Member Boards only, the dues obligation of Member Boards is computed upon “…the number of REALTOR® Members of the Board and the number of individuals licensed with REALTOR® Members by the Board who are not themselves REALTOR® Members.” The phrase, … the number of individuals licensed with REALTOR® Members of the Board and who are not themselves REALTOR® Members” includes both REALTOR-ASSOCIATE®s and those individuals licensed with REALTOR® Members of the Board who are not Board Members. In other words, the Member Board dues obligation remains based upon the premise that the benefits and services which flow from the National Association to REALTORS® and those affiliated with them is most equitably measured by size of the REALTOR®’s organization (number of individuals licensed with the REALTOR® ).

In turn, most Member Boards have adopted and utilized the designated REALTOR® dues formula (i.e., the size formula) on the local level and look to the designated REALTOR® for payment of dues calculated on the number of licensees affiliated with the REALTOR®, with credit offsets for all affiliated licensees who hold Board Membership. The dues provision of the Board Bylaws is applicable, of course, only to those licensees affiliated with the REALTOR® within the jurisdiction of the Board, and is applicable in respect of those individuals licensed with the REALTOR® in any real estate firm in which the REALTOR® holds an ownership interest, provided that such dues obligation does not duplicate dues paid by another principal (designated REALTOR®) of any such firm.

To identify clearly the intent of the National Association Bylaws with respect to the dues obligation of the Member Board, and in turn to clarify the basis upon which the Member Board might appropriately establish its dues provisions for designated REALTOR® Members of the Board, the National Association amended Article II, Section 1 (B) of the Bylaws of the National Association to contain the following provision:

“An individual shall be deemed to be licensed with a REALTOR® if the license of the individual is held by a REALTOR® or by an entity in which the REALTOR® has a direct or indirect ownership interest and which is engaged in soliciting and/or referring clients or customers to the REALTOR® for consideration on a substantially exclusive basis, provided that such licensee is now otherwise included in the computation of dues payable by the principal, partner, or corporate officer of the entity.”

Member Boards are advised that with respect to “direct ownership interest” specified above, this should be self-explanatory. It is ownership, in whole or in part, by the REALTOR®, as the principal or a principal of a real estate firm. The term, “indirect ownership” would include ownership held through a “holding company,” a “trust,” or other legal device which may provide effective ownership control.

The dues obligation does not apply to situations in which there is no ownership relation, direct or indirect, even though a beneficial interest or benefit may exist.

If a question should arise as to the application and enforcement of the local Board dues with respect to the dues obligation of a designated REALTOR® as related to a real estate firm, the following is recommended:

1. Invite the REALTOR® to attend a meeting of the Membership Committee, and in a friendly, constructive atmosphere, ask the REALTOR® to explain his relationship to any real estate firm about which the question has arisen.

2. After a firsthand discussion with the REALTOR®, determine and explain the REALTOR®’s dues obligation. If he agrees, the question is resolved. If he does not agree, the matter should be reviewed by Board Legal Counsel prior to recommendation of the Membership Committee to the Board of Directors. Board Legal Counsel should specifically review the dues provision of the Board Bylaws to ensure that they support any recommendation to be made to the Directors.