What is a Relocation Repayment Agreement

What is a Relocation Repayment Agreement

Home Sale Relocation Programs – Which is the Best Fit For Your Company?

Organizations that offer relocation benefits to their employees and are governed by formal relocation policies, will typically offer home sale assistance to their transferring homeowners. The home sale benefit covered is typically the most expensive component of a relocation program.  However, there are several types of home sale programs utilized by companies,  that can offer varying price tags and tax consequences. The Guaranteed Buyout Offer (GBO)/Amended Value Option (AVO), Buyer Value Option (BVO), and Direct Reimbursement home sale programs are the most popular ones offered to relocate homeowners as part of their relocation benefits. The following provides a high-level overview of each program type:

Guaranteed Buy-Out Offer (GBO) / Amended Value Option (AVO)

The GBO home sale program allows the employee a set period of time in which to have the home listed and obtain an outside offer on the property. The required marketing time period is typically between 60 to 120 days for the employee to have the home listed and to secure an offer to purchase. The list price for the home is also determined by averaging the most likely sales price values given by at least two broker market analysis reports and setting the list price at no more than 103-105% of that average. As soon as the home is listed, inspections and at least two Worldwide ERC (WERC) Appraisals are ordered on the property to determine the guaranteed buyout offer amount to the employee. The employee can accept the buy-out offer contingent on clear inspections, title and within the time frame of the offer period if there are no outside offers in that offer period. Some companies will also offer sales bonus incentives to the employee to encourage aggressive pricing and also put measures in place for list price reductions over set time periods to ensure aggressive marketing. When the buyout happens, the property is taken into inventory by the Relocation Management Company (RMC) on behalf of the employer. All carrying costs are then transferred from the employee to the employer which depending on how quickly the home can be sold could prove costly to the employer. 

In the event that there is an outside offer on the property that is higher than the guaranteed buy-out offer value, the sales price is amended using the AVO program.  The RMC will acquire the property once the contingencies (clear inspections, title, and inspections) on the sale are released and the employee is then cashed out at that higher value amended value offer amount. The guaranteed buy-out offer is always deemed to be the back-up offer to the employee in the event that there is not an outside offer on the property. The objective is to get an offer from a buyer and avoid having to accept the guaranteed buyout offer altogether.  The GBO/AVO program removes the added income tax burden for the sale from the employee as it is viewed as a non-taxable event.

Buyer Value Option (BVO)

Many organizations in recent years have opted to offer the BVO home sale programs to their relocating homeowners due to multiple factors such as less than 60 days on market, reduced costs, and limiting the risk of taking homes into inventory. The employee lists and markets the home until an outside offer is received on the home. The RMC will purchase the home from the employee based on the offer amount as soon as all required contingencies (clear inspections, title, and inspections) have been released and in turn sells it to the outside buyer. There are two distinct sales on the property, one between the RMC and the employee and the second is between the RMC and the outside buyer. This removes the tax liability from the employee for closing costs and the real estate commission for the sale of the home. The RMC must purchase the home prior to the close date with the buyer. Again, there is an element of risk to the company as if there is a sale fall out prior to closing, the home would be taken into inventory and could still result in a more expensive home sale for the employer. This program is clearly, however, a less costly option when compared to the AVO/GBO offering. The BVO home sale program removes the added income tax burden for the sale from the employee as it is viewed as a non-taxable event.

Direct Reimbursement of Home Sale Costs

The Direct Reimbursement program places the responsibility of selling the home with the employee. The RMC can still offer marketing assistance and list price guidance, but the employee will negotiate the terms of an incoming offer on the property and attend the closing. The typical agent’s commission and closing costs (seller and buyer negotiated) are paid at closing by the employee from their equity, but the employer will reimburse typically agent’s commission (caps are applied) and standard and customary Seller closing costs and not Buyer negotiated closing costs such as a home warranty or contribution towards a Buyer’s closing costs.  Reimbursement would be processed once the property has closed and would require a copy of the final closing disclosure. The employer also has the option of offering gross-up protection or not. These reimbursed expenses are viewed as taxable income by the IRS so there is an added tax burden to the company and/or the employee. The direct reimbursement home sale has proven to be the less risky option of all three of the programs.

Organizations that opt to utilize the BVO or AVO/GBO programs commonly stipulate properties that are considered ineligible for their home sale programs such as mobile homes, duplexes, excessive acreage, excessive title, and inspection issues, so as to reduce their risk and expense related to unique properties.

It is important to weigh all the pros and cons of each and determine the amount of risk and expense your company is willing to assume for your relocating employees who are homeowners while offering a benefit that will prove an incentive for your employees to accept a job offer with a relocation.

To learn more about how InterLink helps homeowners during the employee relocation process, give us a call today at 1-866-254-3910 or click here to contact us online.

By: Katherine Hines, CRP

Senior Relocation Consultant

Ginger Merrick, SCRP, SGMS

Senior Global Mobility Consultant

 

© 2020 InterLink Relocation Resources. All Rights Reserved.

 

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