At CRI, we understand that the best candidates for your open roles aren’t always local to your business. We also understand that quality applicants see the appeal of a smooth, stress-free hiring process and are more likely to choose an organization that offers exceptional employee relocation benefits. If you find yourself asking, “What features should my employee relocation package include?” or “How does my employee relocation program compare to other organizations in my industry?” you’re in the right place. CRI is committed to helping you optimize your approach to corporate relocation, and one of our recommendations is choosing the right home sale program for your organization’s budget and business goals.
Home sale programs are highly sought-after benefits that assist homeowners in making their transition to your organization’s area. These programs are designed to make moving easy for new employees by covering real estate commissions and other charges that they may incur as they sell their old home and purchase a new one. The options available to you are direct reimbursement, buyer value option (BVO), and guaranteed purchase offer (GPO). All three offer distinct advantages and disadvantages. In this article, we’ll outline each home sale program type and put the power in your hands to choose one that complements your employee relocation program and your pursuit of talent acquisition success.
Direct Reimbursement
A direct reimbursement home sale program keeps things simple for your business. In this arrangement, your employee would be responsible for hiring a real estate agent, listing their home on the market, and selling and closing on the home. Later, they would be eligible for reimbursement from your organization. Reimbursement typically covers closing costs, the real estate agent’s commission, and other miscellaneous fees.
Pros
With direct reimbursement, the biggest advantage is that your business doesn’t have to risk bringing homes into the organization’s inventory. Even if a home sale falls through, your business doesn’t lose out. This program is as straightforward as it gets, leaving little room for financial complications or errors.
Cons
Your employee will experience the majority of the disadvantages of a direct reimbursement program. They will be required to attend the closing, and the relocation process will take much longer. Plus, the IRS will view their reimbursement payment as taxable income, leaving the employee with less overall support from your organization. This will depend on your employee’s unique tax situation, of course, but it’s still worth considering if their hiring experience is your main concern.
As for your organization, you will miss out on tax benefits (e.g., accounting for the employee’s home sale cost as a business expense). You also have the option of paying the additional cost of tax gross-up if you wish to cover what your employee will owe in taxes on their reimbursement payment, increasing the overall cost to your organization.
Buyer Value Option (BVO)
A BVO program creates a three-party transaction. First, your employee lists their home for sale. Once a competitive offer is received, your corporate relocation partner purchases the home based on a set contract amount and subsequently sells the home to the party who made the competitive offer. This model of home sale program may seem confusing, but as you will see, it offers a number of tax-based advantages.
Pros
In addition to the fact that your employee doesn’t have to attend closing, your organization will enjoy reduced tax liability. No reimbursement or tax gross-up are required, and closing costs and the real estate agent’s commission both qualify as business expenses. Since the final price of the home is determined by the market offer, the expense of an appraisal is offset significantly.
Cons
BVO places your organization at risk of having an unsold home added to your inventory. If a home sale falls through, it becomes your business’s responsibility to sell.
Guaranteed Purchase Offer (GPO)
Also known as a guaranteed buyout, GPO is a home sale program that requires a third party appraisal of the home being sold. This ensures that your employee receives a fair market value. Your employee will then list their home for sale for two to four months, and if their home is not sold in the agreed-upon time frame, your corporate relocation partner will purchase the home. If the home is sold, a transaction similar to what we’ve discussed with BVO takes place and your corporate relocation partner purchases the home in order to sell it to the buyer.
Pros
When your business opts for a guaranteed buyout, you can expect the same tax benefits as a BVO. Your employee also benefits from a truly stress-free move, as they can rest assured that no matter what happens, their home will sell and they can make a smooth, speedy transition to a new home and their new job.
Cons
Although your employee can rest assured that their home will be sold, fair market value isn’t full market value, and they may not get the highest possible selling price for their property. If their home has unique features or requires significant repairs, the appraisal will likely undervalue the home. Additionally, your employee will forfeit the typical control and flexibility they would experience with a more “traditional” real estate transaction.
The Choice is Yours: How to Pick the Best Home Sale Program for Your Business
When you’re ready to select a home sale program, your business goals, your budget, and your employees should be top of mind. Your budget in particular will add unique variables to your decision. If you’re seriously prioritizing the well-being of your employees and your budget isn’t a huge concern, a guaranteed buyout program is likely your top choice. If you’re looking to cut costs and minimize risk, direct reimbursement may be more appealing.
Our advice is to choose wisely and consider exactly what kind of financial and tax liabilities are suitable for your organization.
CRI is Your Corporate Relocation Expert
Successful employee relocation starts with CRI. Whether you need assistance choosing an ideal home sale program or your general relocation packages could use a helping hand, we’re dedicated to problem solving your precise relocation needs.
We’ll provide a streamlined solution that accounts for your talent acquisition strategy and puts you in the perfect position to support your employees’ national or international transition. The complexities and obstacles of employee relocation can feel like impossible hurdles, but with our personalized approach to global mobility services, your employee moves are in expert hands. You’ll even have access to real-time data on your relocation program so no costs or KPIs are unaccounted for.
Partner with us today and discover the difference CRI can make in your employee relocation experience.