February 5, 2019

To: AAR Board of Directors
From: Jeremy Walker, Chief Executive Officer
Re: General Winter Update

Dear Board of Directors,

We hope everyone is off to a great new year. We’d like to share with you several Association updates and a preview of upcoming events:

Membership: Membership numbers have continued to increase and surpassed 16,000 for the first time since 2007. As of December 31, 2018, our membership reached 16,066. The highest membership on record was 16,139 in December 2007.

Financial:
General Fund: The financial health of our organization continues to improve. At the end of 2018, we have an (unaudited) general fund surplus of $460,070. Following the completion of the 2018 Audit, the surplus will be moved to reserve funds. 
 

General Fund Reserves: General fund reserves currently stand at $1,805,907. This represents 8.8 months of operating expenses.

As reported at the Annual Directors Meeting in October, as the Association nears meeting the recommended minimum general reserve fund of nine months operating expenses, focus will shift to rebuilding the building reserve fund and eliminating the remaining debt on the building. 
 

Building Fund: The 2018 Building Fund Revenue ($548,829) exceeded 2018 Building Expenses ($515,121) by $33,708. Following the completion of the 2018 Audit, the remaining $33,708 surplus will be moved to the Building Fund Reserves.

Building Fund Reserves: The Building Fund Reserves currently stand at $792,164. As reported at the Annual Directors Meeting in October, given the ongoing roof and building repairs, the balance of this reserve fund will need to be rebuilt to maintain the building and keep up with required maintenance and replacement of building systems and assets.

The building is a three story, 22,000 square foot, commercial building that is in it’s 9th year of life. Many of the green friendly systems and products originally installed are nearing the end of their recommended life as the building ages and will need to be replaced. One major system failure could exhaust the majority of the building reserve balance. The Association must plan for those needs and be proactive with the maintenance and replacement schedule. Avoiding recommended maintenance will increase costs in the long run. 

Building Mortgage Update:
Current Balance: $3,916,541.
TERM: 9 years with a 20-year amortization
Interest: Fixed rate of 3.75%
Payment: $18,920 principal plus interest. January payment was $31,549.
Maturity: Balloon payment of $2,289,379 on March 11, 2026. 

Building & Assets:

Timeline. A great deal of maintenance, water proofing, and roof repair has been done on the building the last 24 months. A timeline and most recent report from Hixon Consulting is at the end of this report.

Roof leak. Repair work of the roof leaks is ongoing. One stubborn roof leak remains and must be located prior to the completion of the interior work on the building. Hixson Consulting, who is managing this project on behalf of the Association continues to work towards completing this project with the original building general contractor, Jesco Inc., and Summit Waterproofing to address the last intrusion area.

Interior Finishes: Once the roofing and waterproofing repairs are complete, interior sheetrock, paint, and ceiling tiles will need to be repaired and/or replaced. The Association has been able to move forward with some limited areas in the interior and navigate around water damaged areas.

Costs: Mitigation, maintenance, and repair expenditures as of December 31, 2018, total approximately $350,000. Estimates still show the expected final costs for all repairs and deferred maintenance to range from $400,000 to $500,000.

Assets and Investments: Approximately $2,929,599 in Association assets and reserve funds have been transferred to our Association’s investment advisor, UBS, for management in a 100% CD portfolio with an estimated annual rate of return of 1.33 to 1.41%. All of the funds are FDIC insured, and there are no management fees for a CD-only portfolio. Given the volatility of the stock market, this a very conservative investment position.

Audited Net Assets: Preparations are underway to begin the 2018 Audit with the audit firm of Aldridge Borden. The audit takes into account the organization’s total financial picture and net assets. The 2016 and 2017 audits have shown continued improvement in the overall financial health of the Association. The Association has increased the allocation of resources towards financial accountability and compliance efforts. 

The Association has two wholly owned subsidiaries.

• The Alabama REALTORS® Political Action Committee (ARPAC). ARPAC is audited annually by Aldridge Borden and the results are presented to the ARPAC Trustees each year.

• The Alabama REALTORS® Disaster Relief Fund. The Disaster Relief Fund is a 501(c)(3) formed in 2004. The Disaster Relief Fund has not been audited since 2006. The Association has requested the Fund be included in this year’s 2018 audit and extend back to 2010 covering several major storm events. 

New Services and Opportunities:
 

Insurance: Following feedback from member focus groups in 2018, the Association surveyed the membership in the fall of 2018 about their general interest in several insurance lines and products. The feedback was overwhelmingly positive about the membership’s interest in the Association pursuing these optional member benefits. 

Health Insurance: Within the next 60 days, the Association will offer an Association sponsored health insurance plan to all members of the Association. The health insurance will be a Blue Cross Blue Shield product.

• The group plan will provide affordable, quality health insurance for many of our members. Health insurance is a personal benefit and will not be a one size fits all solution for all our members. In some instances, it may not offer members significant savings or benefits depending on their needs.

• Long term, we do hope we can maintain an affordable option for our members with stable rates for as long as possible. More details will be announced in the coming weeks as we get closer to Capitol Conference.

Errors and Omissions: Within the next 60 days, the Association will offer an Association sponsored errors and omissions insurance plan to all members of the Association. The insurance will be underwritten and sponsored by Pearl Insurance- one of the leading E & O underwriters for real estate professionals in the country. Pearl has successfully partnered with over 20 state associations in offering this optional member benefit to brokers and agents. More details will be announced in the coming weeks as we get closer to Capitol Conference. 
 

Consumer Campaign: Later this spring, the Association will launch a consumer outreach campaign to promote the Alabama First-Time Homebuyer Savings Accounts (FHSA) program that was passed during the 2018 legislative session. It helps first time homebuyers save money toward the purchase of their first home through a tax-free savings account that a first-time buyer can use on the down payment and closing costs of a residence. These savings accounts will allow more people to experience the American dream of home ownership. More information on the program can be found here.

Focus Groups: Focus groups are currently underway throughout the state. Focus groups offer an informal, low commitment, and in person way for members to provide valuable feedback on a range of products and services. 

Public Policy: The 2019 Legislative Session will begin in March 2019. Preparations are underway to have a successful four-year quadrennial session. Our Public Policy Committee will track a number of bills each year, monitoring all developments for any legislative initiatives that would harm our members or their businesses. As an industry, this is one of the most important roles we play. 

In 2019, the legislature is expected to consider an increase to the gasoline tax to fund infrastructure expansion, an increase in Medicaid funding to expand services and fund rural hospitals, increase funding for prison construction and ethics reform and clarification. Several of these major initiatives will require additional revenue to succeed.

During discussions of additional revenue, we must remain vigilant for threats to real estate and efforts to balance these requests on the backs of real estate professionals and/or property owners through increases in taxes/fees or removal of real estate friendly tax deductions or incentives in the tax code. Please watch for updates in our weekly newsletter, Real Estate Alabama. 

REALTOR® Day and Legislative Reception:
REALTOR® Day at the Capitol will be the afternoon of Tuesday March 12 from 3:00-5:00pm in Montgomery. The Legislative Reception will be at the AAR Building from 5:00-7:00pm. The event is free to attend. Registration is required.

ARPAC:
Fundraising: ARPAC fundraising and investments had another great year in 2018. We closed the year having raised $799,991.69, which was 133% of our state goal.

We nearly matched last year’s record ARPAC fundraising mark. We closed out the yearwith another strong year for Major Investors – finishing with 188.

Political Races: In the 2018 General Election, ARPAC endorsed candidates for state, judicial and legislative races won 97% of their races (150W/ 4L). Legislatively, ARPAC endorsed candidates won 98% of their races (132W/ 3L).

This was an excellent outcome and the result of four years of hard work by our boards, and trustees, and made possible by the investments our members continue to make in their industry by supporting ARPAC.

Major Investor Dinner: A Major Investor Dinner will be held on Monday evening March 11, 2019 in Montgomery.
ARPAC and Advocacy Awards Luncheon: The ARPAC and Advocacy Awards Luncheon will be held on Tuesday, March 12, 2019 from 12-2:00pm. 
 

Pro Standards and Code of Ethics:
 

NAR Code of Ethics Compliance- Two-year Cycle: NAR’s mandatory two-year code of ethics compliance cycle concluded on December 31. Mandatory ethics training must be completed every two years to maintain REALTOR® membership.

A small handful of members did not complete the required training and their membership status has been placed on inactive status. Each board is responsible for COE enforcement. AAR is responsible for boards who are not their own point of entry.

Professional Standards: Professional Standards Enforcement Training will be held on Monday March 11 for members of the Professional Standards and Grievance Committees. This will be open to all members and free to attend. Registration will be required, and space will be limited. 

Professional Development:
 

Leadership AAR: Leadership AAR will return in 2019. The Leadership AAR Trustees received an overwhelming number of applications this year following the relaunch of the leadership program in 2018 with a newly re-designed curriculum aligning our Association’s mission with each session’s focus. The 2019 Class is filled with a great group of real estate professionals from across the state and will be announced soon.
Fair Housing for All. The American Dream for All- Fair Housing in Today’s Market course will be offered across the state during the months of March and April. The class has been extremely popular each spring. Several years ago, the Association worked with Instructor Jim Lawrence to design the course. Jim is retiring from instructing and will be working with instructor Steve Shelton to carry the class forward.
GRI Program. Over 21 Graduate, REALTOR® Institute courses are being offered this year with more still being added. Check out the scheduled dates here.
All Course Offerings. For a full list of other courses being offered, including REBAC courses, click here. 

Governance:
 

AAR Annual Directors Meeting: Several substantive governance proposals were passed by the AAR Board of Directors and membership: 

• The Board of Directors passed a proposal to send REALTOR® car tag revenue to an Alabama REALTORS® Foundation that will be used to provide disaster relief assistance, benevolent purposes and education scholarships for children of REALTORS® to attend college.

• The Board of Directors passed a proposal to expand code of ethics enforcement to support local boards and include a mediation and citation enforcement policy. 

Annual Awards and Installation Dinner: Over 300 members friends and family attended the capacity event. Jim Lawrence emceed the special event. More information can be found here.

NAR Annual Meeting: At the NAR Governance Meetings in Boston, NAR Directors passed several proposals. More on those can be found here.

NAR Governance Game Changer PAG: President Elizabeth Mendenhall appointed a Presidential Advisory Group (PAG) to review the Association’s governance structure. More information about the PAG can be found here.

NAR Core Standards- 4th Compliance Cycle 2018: The State Association was approved by NAR for the 4th Core Standards Compliance Cycle. 23 of 26 Local Boards were certified and approved for the 4th NAR Core Standards Compliance Cycle. Three Boards did not meet the criteria and were not certified by the state. Those boards will work with NAR to determine their next steps.

NAR Core Standards-5th Compliance Cycle 2019: The Core Standards Fifth Compliance Cycle has begun, and boards should be able to begin using the NAR compliance database to track their events now. The deadline for boards to submit to the State Association will be November 1, 2019.

Names Changes and Territory Applications in 2019: Several boards have applied for unassigned counties in the state to add to their territorial jurisdictions. Several of those applications are contested and may go to mediation or through the hearing process set forward by NAR. The affected counties are Chambers, Coosa, Clay, and Randolph Counties.

In 2018, several boards successfully changed their names. The Phenix City Board is now called the East Alabama Board of REALTORS®. The Dothan Board is now called the Southeast Alabama Association of REALTORS®. Birmingham’s proposed name change to the Central Alabama Alliance of REALTORS® was not successful. 
 

Planning Committee: The 2019 Planning Committee has been working diligently through the fall on efforts to modernize our Board of Directors and help our Association move close to the speed of business in order to better serve our brokers and membership. That proposal will be considered at an upcoming membership meeting scheduled for February 11. More details can be found here.

Membership Meeting: A Membership Meeting has been called for Monday February 11 in Montgomery, AL. at Frazer Memorial United Methodist Church, Wesley Hall. Sign-in will begin at 9:30am. The meeting will begin at 10:00am. The purposed of the meeting will be to consider a proposal from the Planning Committee as noted above. More details can be found here.

Board of Directors Meeting: The next Board of Directors Meeting will be on Tuesday, March 12 beginning at 8:00am. Sign-in will begin at 7:30am. Bob Harris will participate in the meeting and conduct a required training for all directors.

Capitol Conference 2019: More information about Capitol Conference will be sent out later this week when it opens for registration. 

2019: What’s ahead?
 

Membership Meeting: February 11 in Montgomery, AL.
2019 Regular Legislative Session: The Regular Session will begin on Tuesday, March 5 and must end by June 17.
AAR Capitol Conference: March 11-12 in Montgomery, AL.
NAR Legislative Meetings & Trade Expo: May 13-18 in Washington, D.C.
AAR Disaster Relief and Mitigation Training: June 9-10 in Orange Beach, AL.
NAR Leadership Summit: August 11-13 in Chicago, IL.
AAR Public Policy Forum: August 20-21 in Montgomery, AL.
AAR Annual Convention: October 20-21 in Montgomery, AL.
NAR Annual Convention: November 6-11 in San Francisco, CA.
Alabama NAR Core Standards Deadline: November 1, 2019.
ARPAC Contribution Deadline: December 11, 2019. 

Please reach out if you have any questions. Hope to see all of you soon!

Jeremy