Diluted MLS fees, curated hours: NAR’s playbook to stay tax-exempt

The National Association of Realtors has had a turbulent few months, to say the least. 

From a landmark $1.8 billion verdict against the industry trade group and big brokerages in the Sitzer/Burnett trial to top executives exiting in the wake of sexual harassment allegations and threats of blackmail, Chicago-based NAR has faced existential challenges on multiple fronts.

However, one aspect of the organization’s operations has remained bulletproof for years, and internal documents show that it’s not by accident.

The documents reveal how the organization has engineered its qualifications for its tax exempt status. It includes keeping earnings from its maintenance of the Multiple Listing Service, or MLS, at a “point close to break even” and limiting the manpower dedicated to the MLS — an essential tool of the industry that requires NAR membership to access in almost all markets.

The tax breaks, which have mostly evaded scrutiny, may be a crucial factor in the organization’s survival, with its coffers strained from the growing number of lawsuits in the wake of the Sitzer/Burnett verdict. How MLS systems are managed in various pockets of the country is at issue in some of the litigation.

The exact value of the NAR’s tax breaks is unclear, but public records suggest their maneuvers have substantial results. According to ProPublica, the NAR generated $328 million in revenue in 2022. Its total assets, meanwhile, sat at over $1 billion.

Under the tax code, NAR is a 501(c)(6) non-profit. The group shares this classification with “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues.”

The tax exemption also allows the NAR to spend on lobbying without any limits, making it one of the biggest lobbying groups in the country. The NAR’s Political Action Committee, which describes itself as one of the most bipartisan PACs in the country, raised $44 million from more than 550,000 members in 2023, according to the 2023 NAR By The Numbers report.

NAR uses the funds to throw its weight around. Last year, the organization ranked as the second biggest lobbying spender in the country, spending $33.6 million to influence legislation on housing and taxes. The total was down from the previous year, when NAR ranked first with $81.7 million.   

Making the MLS a Side Hustle

NAR directs its chapters to dodge profitability at every turn, including MLS fees engineered to keep profits at an equilibrium.

“Whenever a reasonable operating reserve has been accumulated, it is time to reduce income being generated by the MLS to a point close to break-even,” according to NAR’s 2023 Multiple Listing Policy Handbook, which was published in August and is designed to provide MLS guidelines to local NAR chapters.

NAR policy says “the MLS should not be a primary source of funding for an association of realtors, at least while its membership is limited exclusively or primarily to association members.” 

“Reduction or elimination of service fees, listing fees, or subscription charges should be made as necessary to operate the MLS at or close to the desirable break even point.”

Representatives for NAR did not respond to questions on whether it has ever instituted cuts to MLS fees.

Earnings are not the only thing that is curated in NAR’s operations. The organization leans on a limited number of employees and an army of “non-compensated” members and directs chapters to keep extensive records of their contributions.

The handbook cited the example of a NAR branch that fended off a challenge to its tax exemptions by showing records that only three out of its 10 employees worked on its MLS. 

“This served to clearly demonstrate that a major portion of the staff’s efforts were related to the overall operation of the association and that the MLS operation required only approximately 30 percent of staff for its operation,” the document read.

Incidental Activity

In its handbook, NAR classified the MLS, which services its nearly 1.6 million members, as an “incidental activity” of the organization.

To evade IRS scrutiny of its finances, NAR has instituted a practice of keeping the annual budget for operating an MLS to around half of the annual budget for the local branch, or a more preferable rate of around 30 percent.

The handbook directs associations that income from the MLS should make up “the smallest feasible percentage ratio to the overall budget of an association as possible.”

“This is the most convincing proof that a multiple listing service is, in fact, just one of the many worthwhile activities of an association of realtors,” the document reads.

In the case that a local chapter’s cash flow becomes too great, NAR would require the branch to register as a wholly-owned subsidiary and convert its operations into a taxable, for-profit corporation.