Part 1: Recognizing a Reluctant Renter

In the past, relatively few homeowners became renters. When they did, it was often a lifestyle choice, such as empty-nesters who sold their large suburban home and moved into a city apartment. Today this situation is much more common — and too often an effect of the current housing market and economic conditions.

Why Homeowners Choose To Rent

In the domestic relocation services industry, some transferees cannot sell their departure home and end up renting it out and finding a rental property at the destination. Others expect their time at the destination to be limited. Still others may have been spooked by the volatile housing market in general. The most delicate employee relocation situation centers on what we call “involuntary renters” or “reluctant renters”: homeowner transferees who manage to sell their home but cannot afford to buy another one. Overall, 67% of surveyed companies in Worldwide ERC’s 2010 Transfer Volume and Cost Survey are seeing a “somewhat” to “significant” increase in the number of homeowner transferees who are opting to rent at their new location.

Dealing With Negative Home Equity

Worldwide ERC’s 2010 Transfer Volume and Cost Survey found that a whopping 88% of surveyed companies said their employees complained that their old-location home is in a negative equity situation. As a result, many employers have stepped up loss-on-sale benefits and other home-sale benefits to facilitate sales of departure homes. At the destination end, domestic employee relocation mortgage partners may offer opportunities for low down payments and favorable terms such as VA and FHA financing.

But for some transferees the gap is too large to bridge, even with enhanced home-sale and home-purchase benefits. With so much home equity lost in recent years, transferees who do manage to sell their homes might not only absorb a substantial loss (even with loss-on-sale assistance), but also find themselves without the means to buy a new home. If they happen to be moving to a geographic area with a higher cost of living, the situation becomes even more challenging.

A Dilemma … Or An Opportunity?

Homeowners who are transitioning into renters represent a new category of transferee, with greater and more specialized needs than classic renters, but fewer (and less costly) requirements than homeowners who are continuing as homeowners. This creates new challenges for employers and domestic relocation services companies. But it also creates an opportunity: By recognizing and addressing these specialized needs through policy, employers can facilitate a difficult relocation process, reduce stress and stigma and potentially save a great deal of money in the future.

In part two of this series, we’ll provide some suggestions on how to handle these reluctant renters.

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