How to Handle a Loss On Sale

As a result of real estate market declines of the past three years, many transferees now find themselves in a situation in which their home’s selling price is less than what they originally paid for it. This has made loss-on-sale provisions an important policy consideration. While only 40% or so of U.S. companies offer loss-on-sale assistance, most are aware of the issue and considering their options.

If your company needs to deploy critical employees across the United States or around the world, it may be time to implement a loss-on-sale policy or to evaluate the one you have.

Here are a few key questions that need to be answered when developing a loss-on-sale benefit policy, along with a few of our thoughts on the topics.

Should your company provide this benefit?

This key question is closely tied to your company’s culture, budget, strategic objectives company locations, and frequency of relocations.

Should loss-on-sale assistance be a part of a formal policy or on an exception basis?

According to Worldwide ERC, most companies that offer loss-on-sale assistance make it available to all homeowner employees. We recommend a consistent and fair approach.

Should you require the employee to share in the loss?

Most employers that offer loss-on-sale assistance require the employee to share in the loss. One approach is to contribute after the employee has met a deductible or a percentage of the loss. Another approach is to limit assistance to a certain level.

How should capital improvements be treated?

In theory, the impact of capital improvements on a home’s value should be reflected in the final sales price, so no additional consideration should be required. We advise our clients to perform calculations based off the final sales price of the home.

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