Is a sizzling real estate market good for relocating employees? A look at home sale conditions.

This is Part 1 of a two-part series looking at how the current real estate market is impacting relocating employees and mobility programs. Our focus in this post will be on the sales side. Selling a home is a critical aspect of the relocation process and experience for a new hire or existing employee. Let's consider:

There have been a batch of positive economic projections ranging from Frost & Sullivan's back in February to the very recently released information shared by CNBC from the International Monetary Fund (IMF). Vaccine rollouts and stimulus efforts have the IMF thinking that the U.S. is on track to not only return to but exceed its pre-pandemic performance this year! 

With that information, companies are considering their talent needs, working through new or adjusted work models, and evaluating what impact this might have on their global mobility volumes. These types of predictions are challenging any year, but even more so at this point.

There are, however, many global mobility leaders predicting increased volumes, and while most are not willing to bet they will get back to pre-pandemic peak volumes, they are preparing to support the business and get families moved throughout the remainder of 2021. Right now, programs are re-evaluating resources, needs and desired outcomes in order to provide the best experience possible. So now is a good time to consider the kinds of things employees may experience in this real estate market.  Let's look at the home sale side of things in this post and then we'll review the home purchase situation in our next post.

Relocating employees selling their homes are in a good position.

No question, most places across the country are in a hot seller's market! This article from CBS news shares that 88% of metropolitan regions across the U.S. have experienced double-digit home price growth. Currently, many homes are selling at or above list price. In fact, this recent Redfin article shares that home prices rose 16% to a new all-time high and that 39% of homes sold above their list price, another all-time high and 15 percentage points higher than the same period a year earlier. Here at Plus, we are seeing that number at 37%, but we are expecting it to rise this spring and summer.

Pending home sales are up 28% over last year and new listings are down 12% from a year ago, so most employees putting their homes on the market are facing the least amount of competition that they have seen in a while. Mortgage rates have also remained low so buyers can qualify to pay more and still afford their mortgages. Mortgage rates have even come down slightly from last week, which is pushing borrowers back into refinancing. The demand to purchase is still high and is not slowing down yet.

OK, so sellers are getting good money and selling fast — what could be the problem? 

Well, while prices keep going up, many people are still getting offers at or above their list price. If an offer is significantly above the appraisal on the home, it can create a few issues to grapple with for everyone involved, especially with a home going through a corporate home sale program. In fast-rising markets, there can be a lag where the appraisals are not able to be based on enough comps, so they come in much lower than the offer price, especially where multiple offers are driving the prices higher. The low appraisals are sometimes referred to as "failed appraisals." While a second appraisal can be obtained, it may very well also come in lower than the offer price, or "fail." 

At that point, a few things can happen. The buyer may not be able to move forward unless they want to offer more cash to cover the difference or they may need the seller to lower the price or some combination of these two.  

For a home that is part of a buyer value option (BVO) or amended value option (AVO) home sale program, let's assume the company has "fall through protection" in place. This means the company will be buying the home from the employee for the agreed-upon price, then selling it to that buyer that made the high offer. But now, the company may not be able to follow through due to the appraisal contingency. So the company will be the one that has to deal with the failed/low appraisal and is likely to have to sell that home at a price lower than they bought it for, hence losing money in the process. Their employee will likely still be very happy in getting the full amount of that great offer, though! This scenario may not happen very often, but we are in a real estate environment where it becomes much more likely!

So what is the takeaway for mobility teams? We asked Kelly House, Plus' inhouse real estate expert who explains:

"Throughout 2021 we have experienced an above normal amount of properties experiencing a failed appraisal that requires renegotiation of the terms per the appraisal contingency.  Given that market conditions for the near term remain very competitive, it is our expectation that this risk will continue to be above normal throughout the spring  and summer real estate market.  Once the fall and winter market come around we should have ample comparable sales to support these prices." 

Check out Part 2: "Is a sizzling real estate market good for relocating employees? A look at home purchasing conditions."