Corporations that offer relocation benefits with formal relocation policies typically offer home sale assistance to their transferring homeowners. The home sale benefit is typically the most expensive component of a relocation program. However, there are several types of corporate home sale programs that have varying price tags and tax consequences. The Guaranteed Buyout Offer (GBO)/Amended Value Option (AVO), Buyer Value Option (BVO) and Direct Reimbursement home sale programs are the most popular ones offered to relocating homeowners as part of their relocation benefits. The following provides a high-level overview each program type:
Guaranteed Buy-Out Offer (GBO) / Amended Value Option (AVO)
Depending on the corporation’s policy, the GBO home sale program allows the employee to list and market their home for a set time to obtain an offer from an outside buyer. If utilizing a Relocation Management Company (RMC), their mandatory marketing assistance program is required. The marketing time is typically 60 to 90 days for the employee to list the home and secure an offer from an outside buyer. The list price is determined by averaging the most likely sales price given by at least two Broker Market Analysis (BMA) reports and setting the list price at no more than 103-105% of that average. As soon as the home is listed, inspections and at least two Worldwide Employee Relocation Council (WERC) Appraisals are ordered on the property to determine the guaranteed buyout offer amount to the employee. The employee can accept the buyout offer provided there are clear inspections and title, and within the time frame of the corporation’s offer period. Some corporations also offer a sales incentive to encourage aggressive marketing and appropriate price reductions. If the guaranteed buyout is accepted by the employee, the property is taken into inventory by the RMC on behalf of the employer. All carrying costs are then transferred from the employee to the employer which, depending on the terms of the inventory sale, could prove costly to the employer.
If there is an acceptable and bona fide outside offer on the property prior to acceptance of the GBO, the terms are then “amended” mirroring the outside offer. The RMC will acquire the property once the contingencies (clear inspections and title) on the sale are released and the employee’s equity is paid based on the AVO.
The guaranteed buyout offer is always deemed to be the back-up offer to the employee in the event that there is not an outside offer on the property. The objective is to get an offer from a buyer and avoid having to accept the guaranteed buyout offer altogether. The GBO/AVO program removes the added income tax burden for the sale from the employee as it is viewed as a non-taxable event.
Buyer Value Option (BVO)
Many organizations in recent years have opted to offer the BVO home sale programs to their relocating homeowners due to multiple factors such as reduced costs and to limit the risk of taking homes into inventory. The employee participates in the mandatory marketing period and lists the home until an outside offer is received on the home. The RMC will purchase the home from the employee based on the offer amount as soon as all required contingencies (clear inspections, title, and inspections) have been released and in turn sells it to the outside buyer. There are two distinct sales on the property: one between the RMC and the employee and the second is between the RMC and the outside buyer. This removes the tax liability from the employee for closing costs and the real estate commission for the sale of the home. The RMC must purchase the home prior to the close date with the buyer. Again, there is an element of risk to the company should the sale fall through prior to closing. The home is then taken into inventory and could still result in a more expensive home sale for the employer. This program is a less costly option when compared to the AVO/GBO offering. The BVO home sale program removes the added income tax burden for the sale from the employee as it is viewed as a non-taxable event.
Direct Reimbursement of Home Sale Costs
The Direct Reimbursement, also known as Independent Sale, Program places the responsibility of selling and closing the home with the employee. The RMC provides marketing assistance and guidance; however, the employee will negotiate the terms of the offer and subsequently close the property with the outside buyer. The Real Estate Broker’s commission and negotiated closing costs are paid at closing by the employee; however, these costs will be reimbursed by the employer or RMC. Upon receipt of the signed Closing Disclosure, the employee is reimbursed the customary Real Estate Commission and non-recurring seller’s closing costs. Since the reimbursed costs are considered taxable income by the IRS, there is an added tax burden to either the company or the employee. In most cases, the tax burden is covered by the employer. This program is the least risky option to the corporation.
Organizations that provide the BVO or GBO/AV programs commonly stipulate properties that are considered ineligible for their home sale program. Some examples are mobile homes, duplexes, excess acreage, or excessive title and inspection issues. By identifying ineligible properties up front, the corporation’s risk and potential expense are reduced.
It is important for corporations to weigh each program to determine the amount of risk and expense they are willing to assume for their relocating homeowners. By offering a home sale benefit, the employee is provided an incentive to accept a relocation. .
To learn more about how InterLink helps homeowners during the employee relocation process, give us a call today at 1-866-254-3910 or click here to contact us online.
By: Katherine Hines, CRP
Senior Relocation Consultant
Ginger Merrick, SCRP, SGMS
Senior Global Mobility Consultant