The current competitive real estate market is influencing companies to adapt their talent mobility programs heading into 2024. While the Buyer Value Option (BVO) is the preferred program for most employees, the Guaranteed Buyout (GBO) program might be valuable for attracting talent in a competitive market. Also garnering attention are the underperforming markets and overvalued homes bought during the pandemic, which will also require specific considerations.
Home Disposition
The most expensive benefit that can be included in any talent mobility program is the sale of the employee’s home. Many employees argue that it is also the most crucial benefit, as their decision to relocate often hinges on their ability to sell their family home.
For employees considering relocation, property values remain strong, and in many areas of the country, demand continues to surpass supply. According to CoreLogic, home prices in the United States saw a 2.5 percent increase from July 2022 to July 2023, with a projected 3.5 percent increase from July 2023 to July 2024.
The pandemic fueled the desire to move, as individuals who had never experienced remote work realized they could work for their employer without living within commuting distance of an office. This newfound flexibility prompted many to consider relocating closer to family, areas with a lower cost of living, or regions that offered a better work/life balance. Consequently, the real estate market became fiercely competitive, with properties selling well above their list price and sometimes without inspections or even being viewed in person.
Program Considerations
The Buyer Value Option (BVO) program remains the best practice for all domestic homesale programs in the U.S. Most employers find that the tax savings outweigh the risk of a sale falling through in the current real estate market, and the program overall is less costly for companies than the GBO.
Guaranteed Buyout (GBO) programs are predominantly used at the executive level. However, the continuing talent shortage and the challenging real estate market have also made GBO programs worth considering at the non-executive level. Implementing GBO programs with more generous benefits at lower levels can be a strategic best practice to enhance competitiveness.
GBO programs come with a certain level of risk, and risk-averse companies can consider effective alternatives such as the Buyer Value Option (BVO) or direct reimbursement with tax gross-up.
As a company evaluates its home sale approach, it is crucial to analyze underperforming departure markets and develop corrective strategies accordingly. Best practice is to always include a home marketing assistance benefit that encourages employees to list their properties at a realistic price, promoting a quick sale at the best price.
Company policies can support this goal by requiring Broker Market Analyses (BMAs) and implementing a list price cap, discouraging setting an inflated initial asking price to test the market. The list price cap is usually set at 105 percent of the average of the two BMAs or the average of the two highest BMAs if three are completed.
For renters, best practice is to cover lease breakage penalties, typically up to a maximum of two months’ rent. Employees who will be renting in a new location should be advised to include a “transfer clause” in their new lease, which helps minimize lease breakage fees for future moves. Security deposits are typically not considered for reimbursement, as any loss of a security deposit usually results from tenant-caused damage to the property.
Trends to Watch
The pandemic halted many corporate relocations. However, individuals and families not part of an employer’s relocation program still made moves. As previously mentioned, purchasing property during the pandemic (and even now in some areas) proved challenging, with intense competition driving prices well above the listing price.
Many of these employees are now in homes that will appraise for less than they paid for them (albeit with a very low mortgage rate.) As the market cools down, companies are re-evaluating several benefits to assist these employees and persuade them to move.
- Loss on Sale Benefit:
Most companies removed the loss on sale benefit from their policies during the 2008-2009 recession. As many homeowners owed more on their mortgage than their homes were worth, loss on sale costs spiraled for companies. However, with many employees at risk of being in this situation again, employers are now contemplating reintroducing this benefit into policies or using it on a case-by-case basis to entice valuable talent to relocate. - Guaranteed Buyout Offer Benefit:
New home construction is booming in many parts of the country, which should eventually help to align supply and demand. However, given buyers’ preference for new construction, older or even slightly older homes might struggle to attract buyers.To address this issue, some employers may consider implementing GBOs as part of their talent mobility programs or utilizing them case-by-case to support their employees during a move.
- Security Deposits:
The rental market is just as hot as the home sale/purchase market in most parts of the country. In some cities, the average monthly rent is now higher than the average monthly mortgage payment.
To alleviate this financial burden, some employers cover all or a portion of the security deposit for rentals, offering an additional incentive for crucial talent.
Ready to Learn More Talent Mobility Program Best Practices in 2024? Download TRC’s latest ebook, to explore:
- New ways to make your employee relocation package both competitive and cost-effective;
- Relocation benefits that might be worth reconsidering;
- Steps to jump-start your corporate relocation policy review process; and
- How to improve your current domestic relocation policy to produce successful outcomes.
Download the eBook today and get ahead of the curve on your employee relocation policy.
