There are obviously tremendous expenses involved when moving an employee to a new location. The largest of those expenses typically involves the sale of the employee’s current home. In most cases, the company will want the employee to be moved and settled into their new location within a fairly short period of time.
Depending on the real estate market, the employee’s home could sell right away for the optimal price, or it could have difficulty selling and result in a loss for the employee. Either way, the home sale process can be the cause of much stress and worry for the employee. Such stress can negatively impact the employee’s relocation, as well as his or her work productivity before, during and after the move.
That is why many companies have implemented relocation home sale programs as one of the most important benefits that they provide to their relocating employees who are homeowners.
And although there are a few different home sale programs available, some can be costlier to both the company and employee, while others offer more favorable tax implications.
So, if you are evaluating the different home sale programs for your company, you need to be able to effectively compare and contrast the available options. Here is an overview of the most common relocation home sale programs.
This is perhaps the easiest home sale program to explain, because it simply means that the employee is responsible for the sale of his or her home, and is then reimbursed for the costs associated with that sale. The benefit of this program is that the company stays completely out of the transaction, and has no risk of owning the property in the event that a sale doesn’t occur. The issue with this program, is that the reimbursed expenses are viewed as taxable income by the IRS. So, there is an added tax burden that can become quite expensive for the company and/or the employee.
Buyer-Value Option (BVO)
This program mitigates the tax liability of the direct reimbursement program. It allows the employee to list and market the home until an offer is received on the property. Then, the Relocation Management Company (RMC) purchases the property from the employee based on the sales contract amount, and in turn sells it to the ultimate buyer. So, with the BVO program there are actually two distinct sales that take place for the property. This removes the tax liability for the costs covered to pay for the real estate broker’s commission and the closing costs of the property. However, if the sale falls through for any reason, there is the risk of the home being taken into inventory, which can be costly.
Amended Value Option (AVO) / Guaranteed Buy-out
With the AVO program, the employee normally has a set timeframe in which to find a buyer for the property. This could be anywhere from about 60 to 120 days. If the employee is unsuccessful in selling the home, they have the option of taking a guaranteed buy-out offer, which is based on an appraised value of the property. Once the buyout happens, the property is taken into inventory, which again, can be costly. But, like the BVO program, the AVO program also removes the added income tax burden.
Which Relocation Home Sale Program is Best?
As you can see, relocation home sale programs can be very complex and complicated until you understand them. In short, the goal for any relocation home sale program should always be to reduce the financial risk and tax implications for both the employee and the company. While all programs have certain advantages and disadvantages, the BVO program has become the program of choice for many of the companies.
For more information about relocation home sale programs, please contact VERSA anytime! We are always here to help you make the best choices for your organization!