With the rebound of the U.S. real estate market and the current competition for talent, companies that distanced themselves from home sale assistance often have found themselves at a disadvantage. However, given the current trends impacting U.S. domestic relocation policy, it’s worth taking another look at relocation home sale assistance as a strategic tool for at least some employees.
Home Sale Assistance Benefit
Most companies reserve Guaranteed Buyout (GBO) programs for Executive level employees, if they use them at all. Incorporating a GBO program at a level where there are fewer annual moves, but also where a company will want the benefit offerings to be more generous and thus more competitive, is a strategic best practice. Currently, the national real estate market is generally healthy and in many parts of the country, homes are selling rapidly, often at or above asking price. This reduces the odds that an actual buyout will even be necessary, assuming a mandatory marketing period is in place. For more risk-averse companies, a Buyer Value Option (BVO) or direct reimbursement with tax gross-up can be effective alternatives.
For a non-executive, homeowner tier, a BVO or direct reimbursement program with tax-gross up is the best practice. For policy tiers split by grade level (particularly in managed cap programs), the financial cap for mid- to upper-grade levels typically includes normal and customary closing costs and tax gross-up.
Any company reviewing its relocation home sale strategy and programs should assess its worst performing departure markets and strategize accordingly. Additionally, with any type of home sale policy, strict marketing guidelines should be in place, including agent pre-approval, two broker market analyses (BMAs), and a listing price capped at 105% of the average of the BMAs.
For renters, providing a lease breakage benefit is best practice, with the benefit covered at either the actual amount or a capped amount. As an example, a lease breakage benefit might be two months’ rent or $2,500, whichever is less. To avoid lease breakage penalties in the future, all transferring employees who will be renting in the new location should be encouraged to request that a “transfer clause” be included in their new lease.
Destination Home Finding Benefit
A destination home finding trip is best practice across all industries. The purpose of the home finding trip is to assist the transferring employee in selecting a new residence quickly. This reduces temporary housing expenses and on-the-job time lost to relocation distractions. Settling in faster also improves the employee experience by reducing stress.
The home finding trip allows transferring employees to begin to become acclimated to the area, view prospective housing options (to purchase or rent), and tour schools (if applicable). The variables typically include the length of the trip and the inclusion of family members.
Best practice for homeowners is 5 days/4 nights, including travel time, and with an accompanying spouse/partner included. For Executives, best practice is 7 days/6 nights total, which companies often allow to be broken into two separate trips. For renters, best practice is 3 days/2 nights, including travel time. Other benefits included are airfare (or mileage), a rental car (if flying), tolls, parking, lodging, and a per diem for meals. Companies typically encourage weekend travel, with many requiring a Saturday overnight stay to reduce the amount of missed work time.
Employees who intend to purchase in the destination location will be working with a real estate agent, who will provide a tour of the target neighborhoods. To improve their experience, renters should be encouraged to work with a local area expert as well. Best practice is to provide a one-day rental tour in the destination location. To contain costs, companies can cap this benefit at an average daily rate. The typical cost of this service is $895 per day.
Relocation Home Sale Assistance and Finding Trends to Watch:
- Home Sale Trend: Consideration of home sale assistance by companies that once had these programs but discontinued them and companies that have never offered these programs. Also, a slowing real estate market in some previously hot areas, including California and New York.
- Destination Home Finding Trend: Greater consideration of renters’ needs and their overall
relocation experience. And the combination of emerging real estate bubbles in some popular, high-cost transfer locations, and the 2017 Tax Cuts and Jobs Act which limited home-related deductions and has made property ownership more expensive (and in some cases, less attractive) in California and the Northeast, in some markets, some transferring employees might be transitioning from homeowner to renter.
Next Steps with Your U.S. Domestic Relocation Policy
Perhaps more so than in the past, external events, demographic changes and other big-picture considerations are influencing mobility policy in 2020, and it is important to keep up with those changes. If you have not benchmarked your policy against your industry norms in some time, this would be an opportune time to do so. And while doing so, it would be of benefit to survey your transferring employees on service quality, perceptions of your relocation policy and how well it met their needs.
Download the latest eBook on U.S. relocation policy trends to learn what’s influencing mobility programs and how companies are responding.