Issue 1 2009 > Relocation Policy Provisions in a Depressed US Real Estate Market
Relocation Policy Provisions in a Depressed US Real Estate Market
For corporations that conduct business in the United States, relocating employees within the country is always challenging, especially if the employee is a homeowner. According to Worldwide ERC, just over half of all North America company relocations involve homeowners.
Home values in the U.S. have declined by 15% in the last 12 months, according to the Case-Shiller index, which makes it difficult for employees to sell their homes and relocate. Some transferees are even finding themselves in a negative equity position (when they owe more on their mortgage than their home is worth). As a result, mobility professionals are finding it challenging to persuade employees to relocate and for those that do, the relocation program costs are increasing.
According to a Worldwide ERC® 2008 survey, in the past two years, 65% of companies reported making changes to their relocation policy as a direct result of the slowed housing market and its effect on relocation costs. To provide mobility professionals with options to consider addressing these challenges, Crown North America developed a “Toolbox for a Declining Real Estate Market.” This article provides a broad overview of some of the strategies in Crown’s Toolbox. The full Toolbox can be obtained by clicking here.
Employee Mandates
Linking company relocation benefit entitlements to specific behaviors reduces costs and enhances employee productivity.
- In order to expedite the home sale process, consider the use of registered Real Estate Brokers who are experienced and understand corporate relocation transactions.
- For companies that offer an Appraised Value Offer program, mandate a pre-marketing period of 30-45-60 days, prior to initiating the appraisal process. This assists the employee in understanding market conditions and assembling a realistic strategy.
- In an economic down turn, competitive pricing is essential. Require employees to list their homes within 3%-5% of the most probable sales price to encourage effective promotion of the property.
Concessions & Reimbursements to Attract Buyers
Providing an additional menu of support options enables employees to reduce marketing times and secure a buyer more quickly.
- Paying for the buyer’s closing fees, pre-paid property taxes, landscaping costs, alarm monitoring services, etc.
- Reimbursing employees for repairs, improvements and staging costs.
Extending Benefits
Permitting employees access to relocation benefits for a longer period may improve relocation acceptance levels.
- Extending the period of time that the home sale support can be exercised from a 12 month period up to 18-24 months, as the relocation taxability of the home sale transaction is not tied to the IRS 12 month rule.
- Extend temporary housing period benefits (and allow the family to occupy temporary housing with the employee).
New Provisional Benefits
Add financial support options to recruit critical talent and to ease the financial burden of relocating in today’s market.
- Providing employees with incentives to encourage them to sell their homes, with incentives ranging from 1% -3% of the sales price; pay out a higher percentage for employees that sell early in the listing period.
- Reimbursing employees for duplicate housing expenses such as pro-rated mortgage payments, property insurance, pro-rated taxes, property maintenance and utilities. If employees are already eligible for this benefit, they can be given a reasonable extension.
- For employees facing a negative equity position, reimburse them for a portion of the loss (up to 80% of the loss).
Regardless of the options chosen, Crown recommends that these provisions are implemented as supplemental benefits, as opposed to changing core policy benefits. It is also important that these “flex” benefits are clearly defined, with regard to term limits, monetary caps, etc. Further, in order to ensure the provisions are indeed providing meaningful support, Mobility Managers should survey their relocating employees often and adjust the options accordingly.
Written by:
Tricia Stewart, BA, CRP, GMS
Director, Consulting Services
Based in Brookfield, Connecticut, USA
Email: tstewart@crownrelo.com