The mortgage and real estate markets have reacted dramatically as the Fed continues to fight inflation with rapid rate increases. This can affect a company’s relocation program and current and potential transferees. Here are some potential issues affecting home sales and purchases.
For companies with BVO and GBO programs, there’s greater potential for sale fall-throughs and properties entering inventory. More broadly, getting employees to accept a relocation could be more challenging due to departure and destination housing concerns. For example:
- Employees who bought at the height of the market are finding that the values of their newly purchased homes have gone down as the real estate market levels off.
- Employees might want to list their properties for an aspirational price in a cooler market.
- Employees willing to move and to list at a reasonable price might face a loss on sale.
- Higher mortgage rates have reduced transferees’ purchasing power and could make finding a comparable destination home more difficult.
- Employees might not be willing to give up their current low mortgage interest rate, knowing they will face a considerably higher rate in the new location.
- For those willing to sell and rent in the new location until rates come down, the rental market is exceptionally tight, with a lack of inventory and monthly rents averaging more than $2k nationally.
- Buyers who do not have a locked-in rate might find themselves unable to afford or get final approval for a mortgage if there is a last-minute rate increase.
Here are some ways to reduce the risk of a sale/purchase fall-through:
- Make list price caps a relocation program requirement to receive home sale benefits.
- When the contract is signed and executed, the mortgage rate should be locked in. If the rate is not locked in and the RMC has already acquired the property, there is the risk of fall through after acquisition if there is a last-minute rate increase.
- Encourage rate lock extensions where possible.
- Be open to making potential concessions on behalf of the employee to hold the sale together.
- Think about adding a loss on sale benefit to your program if there isn’t one already in the policy.
- Consider adding a home sale bonus to BVO programs to encourage a competitive listing price.
- Pay the home sale bonus as a concession at closing rather than an after-closing reimbursement.
- Consider mortgage payment differentials for employees moving to a higher cost-of-living area.
- Typically phased out over two or three years as the employee adjusts to the new area.
- A salary increase can be an alternative to the mortgage payment differential.
Companies can consider program enhancements such as:
- Mortgage interest differential benefits (MIDA)
- Sliding scale payment of points
- Interest-based or dollar-driven mortgage subsidy
- Down payment assistance for home purchases