Selling the departure home efficiently and cost-effectively is one of the most critical tasks for relocating employees and their employers. For companies that provide relocation assistance, the Buyer Value Option (BVO) is a popular program designed to meet these objectives.
This comprehensive guide explores BVO, outlines the advantages and disadvantages of including it in a relocation package, and offers practical tips and best practices for integrating BVO into your company’s relocation program.
What is a Buyer Value Option Relocation Program?
The Buyer Value Option (BVO) is a tax-advantaged home sale assistance program designed to facilitate the sale of an employee’s home during a corporate relocation. The process might seem technical, but the steps must be followed to comply with IRS guidelines for tax-advantaged relocation programs.
BVO involves third-party relocation management companies (RMC) purchasing an employee’s home on the employer’s behalf once a bona fide buyer is found and then re-selling it to that buyer. This approach provides several benefits for the employee and the employer, making it a popular choice among HR professionals managing corporate relocations.
How BVO Works
- Employee Lists Home:
The process begins with the employee listing their home on the market. The BVO program typically uses two broker market analyses to help the employee determine a realistic value for the home (a third BMA might be ordered if the first two vary by more than five percent). Most corporate relocation policies require that the listing price be no more than 105% of the average of the two BMAs. The employee works with a qualified real estate agent to determine a competitive price and market the property. - Employee Receives Bona Fide Offer:
When the employee receives a bona fide offer, the RMC assesses the buyer’s qualifications, including mortgage pre-approval. Most client policies do not permit contingent offers or other offers that could delay or potentially compromise the relocation. - Employer/Relocation Company Buys Home and Completes Sale to Buyer:
If the offer is acceptable to the employee and meets client policy, the RMC offers to buy the home from the employee at the same price, pays the employee’s equity and completes the sale with the buyer per WERC’s™ recommendations for a tax-advantaged sale. This allows the employee to look for a destination home without waiting for the home sale to close.
Advantages of Offering BVO as Part of a Relocation Package
- Cost Effectiveness
BVO is usually more cost-effective than traditional Guaranteed Buyout (GBO) programs. It can also be an attractive alternative to Direct Reimbursement programs, which are not tax-protected and can create substantial gross-up expenses. Additionally, a faster home sale will reduce expenses for temporary living, travel, and expense gross-up. By waiting for a bona fide buyer before purchasing the employee’s home, the employer almost always avoids the risk and expense of holding the property in inventory and re-selling it. This can lead to significant savings on carrying costs, such as property taxes, maintenance, and insurance. (If the Buyer Value Option sale does fall through, the employer must take the home into inventory, and the RMC will work to re-sell it quickly. This element of risk, albeit small, is a required part of a tax-advantaged homesale transaction.)
- Reduced Employee Stress
One of the primary concerns for relocating employees is the prompt sale of their home. BVO alleviates this stress by ensuring the employee does not have to manage the home sale process alone. The involvement of an RMC can streamline the process, allowing the employee to focus on their new role and location. Employees can relocate with peace of mind, knowing that their home sale is being handled professionally and that they don’t need to attend the home closing. They also have access to their home equity earlier in the process to facilitate the purchase of a new home.
- Tax Benefits
BVO offers favorable tax treatment under IRS guidelines. The transactions are structured to qualify as non-taxable events so the employer can avoid the tax gross-up costs typically associated with direct reimbursements or home sale losses. This tax advantage makes BVO an attractive option for employers and employees, reducing the overall financial burden of relocation.
- Market-Driven Sales Price
Since the home is sold to a bona fide buyer on the open market, the sales price reflects the current market value. This ensures a fair price for the employee and mitigates the risk of under- or overvaluation. The market-driven approach aligns with the principles of supply and demand, providing a transparent and equitable solution for all parties involved.
Disadvantages of Offering BVO as Part of a Relocation Package
- Extended Time Frame
The BVO relocation process can take longer than a GBO program because it depends on finding a bona fide buyer. This delay can be a disadvantage if the relocation needs to occur quickly, potentially increasing temporary housing or travel costs. The extended timeframe can also impact the employee’s ability to promptly settle into their new location.
- Market Risks
In slow or declining real estate markets, finding a bona fide buyer willing to pay an acceptable price can be challenging. This can lead to extended time on the market and potentially duplicate housing or travel costs if the employee needs to start before the home sells. Market volatility can introduce unpredictability into the relocation process, requiring careful management and contingency planning.
- Complexity of Process
BVO involves multiple steps and coordination among employees, the RMC, and real estate agents. If not appropriately managed, this complexity can overwhelm the HR department and the relocating employee. Proactive counseling and robust account management are essential to navigate the intricacies of the BVO process.
Practical Tips and Best Practices for Integrating BVO into Your Company’s Relocation Strategy
- Partner with a Reputable Relocation Management Company
Choosing the right RMC is crucial. A reputable provider will have the expertise and resources to manage the BVO process efficiently, ensuring a smooth experience for both the employer and the employee. Look for companies like TRC Global Mobility with a proven track record, strong industry relationships, and comprehensive relocation service offerings.
- Educate Employees
Provide clear, comprehensive information to employees about how the BVO program works, including timelines, expectations, and benefits. This transparency will help set realistic expectations and reduce anxiety. Relocation Counselors should explain the process thoroughly and offer additional written or electronic information.
- Monitor Market Conditions
Stay informed about real estate market conditions in the areas where your employees relocate. This knowledge will help you anticipate potential challenges and adjust your strategy accordingly. Regular market analysis can inform pricing strategies and marketing efforts, improving the likelihood of a successful home sale.
- Streamline Communication
Your RMC should ensure open and consistent communication between all parties involved in the BVO process. This includes regular updates to the employee, clear instructions to real estate agents, and ongoing coordination with your program manager. Establishing a central point of contact and utilizing technology platforms can enhance communication efficiency.
- Evaluate and Adjust Policies
With the help of your RMC, periodically review your relocation policies and the performance of your BVO program. Solicit feedback from relocated employees to identify areas for improvement and make necessary adjustments to enhance the program’s effectiveness. Continuous improvement ensures your relocation strategy aligns with evolving needs and industry best practices.
- Leverage Technology
Utilize technology to manage the BVO process more effectively. Tools such as online portals, real-time tracking, and automated notifications, part of TRC’s ReloSource technology, can streamline operations and provide transparency for all stakeholders. Technology can also facilitate data collection and analysis, supporting informed decision-making and process optimization.
- Develop a Comprehensive Relocation Package
BVO can be one component of a broader relocation package that addresses all the critical components of the relocation process. Consider including temporary housing, moving assistance, spousal support, and settling-in services. A holistic approach ensures that employees receive comprehensive support, enhancing their overall relocation experience.
- Foster a Supportive Company Culture
Promote a company culture that values and supports employee relocations. A positive and supportive environment can significantly impact employees’ perceptions of the relocation process and job satisfaction. Encourage open dialogue, provide stress management resources, and recognize the contributions of relocating employees.
Incorporating a Buyer Value Option Relocation Program can offer significant advantages, including cost savings, reduced employee stress, and favorable tax treatment. However, it has potential drawbacks, such as extended time frames and added complexity. By following best practices such as partnering with a reputable relocation management company, educating employees, leveraging technology, and fostering a supportive company culture, HR professionals can successfully integrate BVO into their relocation programs and enhance the overall relocation experience for their employees.
At TRC Global Mobility, our motto is Relocation Made Better. Lives Made Easier. We are committed to helping you navigate the complexities of employee relocation. Our expertise in BVO and other relocation services ensures your employees receive the support they need for a seamless transition.
Contact us today to learn more about how we can assist you in optimizing your corporate relocation package.
