There are benefits to a real estate sale during a relocation. The process begins with the sale of the home. When it comes to selling a home as part of an employee relocation, corporate buyouts come in two main varieties:
- An appraisal
- An outside offer
There are other types of relocation-specific home sales, such as direct reimbursement of expenses, but these open the employee up to unnecessary taxation.
More on Buyouts
A guaranteed buyout (GBO) is based on the value of two appraisals, which average a guaranteed offer to buy a relocating employee’s home. A second type of buyout, a buyer value option (BVO), offers a buyout based on an outside buyer’s offer.
In both cases, the employer would take over the financial responsibility and (sometimes) title until closing with a buyer. This allows the employee to move on to his or her new location with less of a burden and to escape taxation. This happens because the money relating to the home sale never actually passes through the employee’s hands. A real estate relocation specialist can help understand these types of offers.
Additional Home Sale Bonuses
In addition to a buyout, employers often offer add-on benefits, such as loss on sale (LOS) protection or a sale bonus. Both LOS and a sale bonus can be engineered to incentivize a home sale. The former by reducing any negative impact of a sale and the latter by “sweetening” the deal if the sale happens in a timely manner.
These benefits are not tax protected. Employees may incur a tax on these benefits if the employer does not elect to “gross up” the incentive.
Home Sale Bonus Trends
A consideration for both additional home sale benefits is the employee’s status within the company. It is not uncommon for these relocation house sale benefits to only be offered to existing employees and those in higher tiers. New hires may fall into a different policy tier altogether.
Based on our benchmarking data, the average percentage of offering relocation home sale benefits is 67.5%. A breakdown of these benefit offerings by industry is detailed below.
- Homesale Benefit – Manufacturing Industry 33%
- Homesale Benefit – Pharmaceutical Industry 91%
- Homesale Benefit – Restaurant & Quick-Service Chains 50%
- Homesale Benefit – Insurance Industry 100%
- Homesale Benefit – Food & Beverage Manufacturing 56%
Sale Bonus
In general, employers are more prone to offer a sale bonus when a GBO is involved, since there is more risk of the home not selling. This bonus is often based on the sale price (1 – 5% being the most common), but some companies will offer a flat rate instead of a percentage.
Since some employers also require a mandatory listing period before accepting a GBO, it is common to see the bonus amount decrease over this time, starting at its highest amount before the appraisals are ordered or concluded (e.g. a 4% sale bonus before appraisals, 3% within 30 days of appraisals, 2% within 60 days, and 1% within 90 days).
It is common to see the bonus expire when the buyout expires.
Loss on Sale Protection
Homes bought during the peak of the housing bubble suffered losses in many markets over the past decade. But with the housing market strengthening and stabilizing, there are fewer losses today. To counteract any possible losses during a relocation home sale, the LOS benefit comes in many shapes and sizes.
Traditionally, loss is calculated based on the amount paid for the home and does not include capital improvements. Once the loss is determined (sale price minus purchase price), employers have two choices:
- Cover all of it (often up to a capped amount)
- Cover a portion of it.
As a further breakdown, some companies offer to cover 50 – 75% of the loss, and the employee must cover the remainder. Often, we see employees pay 100% of the loss but only up to a capped amount (e.g. anywhere from $20,000 – 50,000). If the loss is greater than this cap, the employee can either pay the difference and continue to market and sell the home, or decide against selling the home entirely. Our research has shown caps up to $150,000, but amounts this high are uncommon.
On average, 49.5% of companies offer LOS benefits. A breakdown by industry is detailed below.
- LOS Benefit – Manufacturing Industry 17.5%
- LOS Benefit – Pharmaceutical Industry 91%
- LOS Benefit – Restaurant & Quick-Service Chains 12.5%
- LOS Benefit – Insurance Industry 62%
- LOS Benefit – Food & Beverage Manufacturing 56%
WHR Group can help with LOS benefits and a home sale bonus. We can help structure per tier to meet your organization’s unique needs. Insulating the business from unnecessary risk is important. Real estate and home relocation services can be tricky to navigate. Our 20 years of relocation service expertise will guide you to the right policy for your organization.