NAR membership structure, fees under fire in new lawsuit
A California broker is suing NAR and his local associations, alleging that fee rules are anticompetitive and have “a chilling effect on independent brokerages.”
After a lull in litigation activity this spring, the National Association of Realtors is facing a new lawsuit tied to membership requirements.
The complaint is the latest in a string of cases challenging the membership fee structure. Unlike earlier suits, this one doesn't specifically target NAR's three-way agreement — the requirement that Realtors must be dues-paying members of their local, state and national associations — but alleges that the fees place an unfair financial burden on agents and brokers.
What the case is about: John Diaz, who operates a residential brokerage in Modesto, California, filed a lawsuit June 9 against the National Association of Realtors, Lodi Association of Realtors, Central Valley Association of Realtors and the California Association of Realtors.
In the filing, Diaz alleges that the membership fee structure is anticompetitive and in violation of federal antitrust law, and challenges NAR's policy of imposing dues on brokerages for non-Realtor licensees.
Fees discourage participation in the industry: Diaz asserts that the combined membership fees for the four associations named in the suit, which total more than $1,000 per year, place a significant financial burden on real estate professionals. As a result, "Many licensees choose to become or remain inactive in real estate sales for failure to associate with a broker," the filing states.
It goes on to allege that such inactivity "is an issue in all or a substantial part of the markets where NAR operates, nationwide."
In the filing, Diaz estimates that thousands of agents in California "and probably tens of thousands nationally" are unable to associate with brokers because of the fees. "Instead, they choose to do no real estate sales."
Brokers shouldn't have to pay for non-member agents: The lawsuit also challenges NAR's Variable Dues Formula, which requires brokerages to pay dues for their non-Realtor licensees, even if those agents do not need access to the MLS to do their job.
The filing alleges that the system hurts smaller brokerages in particular because they cannot hire someone to perform functions such as Agent Visual Inspections or to work in commercial sales or leasing activity without paying member dues. That gives larger, better-funded brokerages a leg up on staffing, according to the lawsuit. "The result is a chilling effect on independent brokerages and a suppression of alternative business models," the filing states.
"Non-member licensees often work in areas in which Realtor membership provides little to no benefit, but they are unable to join a Realtor member brokerage or decide not to join a Realtor member brokerage because of the financial barrier," according to the filing.
This lawsuit is one of several around the U.S. involving mandatory membership. Other active lawsuits include cases in Georgia, Michigan, Texas, Pennsylvania and Louisiana.