Helping your employees and assignees sell their homes can pay off in lower relocation costs, quicker relocations and happier employees. But it also can be the most expensive element of your mobility program. Choosing the wrong program can raise this price tag even more in taxes, lingering inventory and higher temporary living costs.
You might want to tap into one of our resources for exploring home sale programming. Try "Choosing a Homesale Program," which details the pros, cons and costs of the different options for supporting relocating employees with the sale of their home, including the Buyer Value Option (BVO) and the Appraised Value Option (AVO), which is often referred to as a Guaranteed Buyout (GBO). Or check out "The Six Big Questions to Ask About Home Sale Programs," which further explores the nuances of home sale programs.
Now let's add the concept of a "sunset clause" into the mix. This clause can be added to a BVO program and sets a specific amount of time for the home to be marketed before then ordering appraisals and moving forward with a buyout from the company.
How is it different than an AVO or GBO? Well, actually, it becomes a lot like a GBO and is sometimes referred to as a "Delayed Guaranteed Buyout." As opposed to having the appraisals ordered right away, the appraisals get delayed and ordered after the home has been marketed for the specific amount of time set forth in the sunset clause. We have seen the marketing period be as short as 30 days or as long as 240 days, but most choose a marketing period between 120-180 days.
From there, things do proceed just like the AVO/GBO where we adhere to the 11 key elements of an amended value program that were developed by Worldwide ERC. Additionally, once the appraisals are ordered and averaged, the company can decide to set their offer prices at 95% of that appraised value to help motivate the employee to more aggressively market their home and sell it during the marketing period.
A few talking points related to delaying appraisals:
- The company receives an initial cost savings by deferring the appraisals on homes that sell prior to the sunset clause being enacted.
- Our experience at Plus has been that relocating employees tend to over list (set their listing price too high) at the onset and are slower to take price reductions when they know a buyout program is around the corner. The employee selling their home does not want to list below what the buyout price might be and also doesn't want to show weakness in pricing by taking a reduction prior to the appraisal process. This often leads to longer marketing times and decreased satisfaction once the appraisal process results are established. This can also result in longer durations for completing a relocation and lead to subsequent exception requests on other benefits.
- A BVO without a sunset clause would be more cost effective and eliminate the misperception of needing to over list and refrain from price reductions.
Offering a home sale benefit can shorten the duration of the relocation and result in a more engaged and productive employee in the new location. While the backstop of offering a buyout (sunset clause) is well intended, the effects it can produce at the onset of the marketing process may be counter-intuitive for what is best for the employee and company.
Mobility programs should consider the pros and cons of the sunset clause as they consider their options and work to align with the goals and budget of their mobility program.
Selling a home can be nerve-racking for relocating employees, and home sale programs can go a long way in easing and improving their overall experience. But different home sale programs can have drastically different impacts to both the employee and to you, especially when it comes to tax implications.