Relocation sales are often misunderstood. We’re here to change that.
As a quick recap, a relocation company is a company that specializes in helping employees relocate from one area to another due to work relocation. A relocation sale with a relocation company’s help, has advantages and disadvantages, so it helps for employees and HR managers to know the types of sales associated with relocation.
What is a Relocation Sale?
A relocation sale is the sale of a home with the help of a relocation firm because an employee needs to relocate for their job. It is the employer’s responsibility to hire a relocation management company to sell the employee’s home.
With some relocation companies, like ARC Relocation, military families or civilians can be paired with a military relocation specialist to assist with their relocation sale and move. This program is similar to the USAA movers advantage program, which is meant to help the relocating employee save money during the move.
Types of Relocation Sales
There are 3 distinct types of relocation sales can be utilized when selling an employee’s home for a job relocation:
1) Direct Reimbursement
Direct reimbursement is relatively straightforward and is exactly how it sounds. Your employee can sell their home and submit the closing costs to their employer for reimbursement. While this process sounds simple, there can be some complications.
This type of reimbursement is considered income to your employee and is contingent on your company’s standard payroll withholdings. Depending on your company’s policy, the employee or your company will end up paying the taxes. This situation can end up being costly, which is why it is considered complicated.
2) Buyer Value Option
The buyer value option is one way to avoid direct reimbursement. BVO (buyer value option) is typically more affordable for both your employee and your company. Your employee markets their home until they find a buyer. The relocation management company purchases the employee’s home on behalf of your company, selling it to the buyer.
The BVO saves taxes for both your company and for your relocating employee. With this approach, your employee will not need to pay closing costs or real estate commission when they sell their home to the relocation management company. As a result, your company will not need to reimburse the employee for these costs.
This is helpful for your employee, as they would need to pay income tax on the reimbursement. With BVO, your company pays closing costs and commission once the employee’s home is sold to the buyer, and these costs are considered operating expenses.
Your company’s legal department must be notified before changing or adding to this option to ensure that all legal and tax requirements are known.
3) Guaranteed Buy Out
With a guaranteed buyout, the relocation management company orders two independent relocation appraisals of the employee’s home. The appraisal is assessed based on many factors, like recent sales of other homes in the area, what a person would typically pay for homes in that area within the upcoming 120 days, and the local market’s well-being.
Relocation appraisals are different from bank appraisals because a bank appraisal aims to account for a sale price. A relocation appraisal determines the amount a buyer usually pays for a property within the same area within the next 120 days.
Your relocation management company will offer to purchase your employee’s home for the average cost of both appraised values. Remember that your employee will most likely be required to list their home for a set amount of time, which is usually between 30 and 120 days, before accepting an offer.
If your employee chooses to accept an offer on their home, they can quickly move on to their new location. Overall, this is less stressful for your business and your employee. Another positive to a guaranteed buyout for your employee is that if their home stays on the market for longer than expected, the company will cover the costs of essential maintenance, carrying costs, and home upkeep until there is a buyer.
Are Relocation Homes Cheaper?
Relocation homes might not always be cheaper, but they are reasonably priced for the market. Relocation properties are typically in good condition because relocation management companies usually do any necessary repairs themselves before selling the home.
The main goal of a relocation management company is to get the home in the best possible condition for it to sell quickly once it hits the market.
Do Relocation Companies Actually Own The Homes?
In some cases, a relocation company (relo company) might offer to either entirely or partially buy the home. However, the house will usually remain in its owner’s name for the first few months of the home being on the market.
The relocation company will hire movers, find a moving van line, and may even assist in finding a new home for the employee. Real estate relocation companies will also be responsible for selling the employee’s home, even if they have not yet wholly or partially purchased the property.
Buying a House from a Relocation Company: How to do it?
Purchasing a house from a relocation company is not much different than typical real estate transactions. However, there are a few differences during the process. From a general homebuyer’s perspective, there are some advantages and disadvantages to be aware of when dealing with relocation houses for sale.
Advantages
- Bargains are possible
- Emotions of selling the home do not get in the way
- Houses are usually in good shape
Disadvantages
- Additional paperwork
- Delays are possible due to corporate structure
- Must be prepared to move quickly
- Fewer contingencies are accepted
- Homes are sold without warranties and “as is”
Final Thoughts
A relocation sale can seem complicated at first, but having a dedicated relocation company on your side can help make the process much smoother.
Schedule a consultation with ARC Relocation today if your company is involved with a relocation sale process and needs guidance on the next steps or to help find a reputable relocation management company.