Don`t tell Jim O`Hargan your home is your best investment. He`s lost money on his homes three straight times.
In the course of ascending the career ladder, O`Hargan moved from Houston to Dallas, from Dallas to New Jersey, and then last year from New Jersey to the Chicago area.
”You end up moving into an area when it`s hot and relocating when it`s soft,” said O`Hargan, a vice president of the Genlyte Group, Inc., a lighting manufacturer headquartered in Seacaucus, N.J.
The move from New Jersey to Chicago last fall was the rock bottom, O`Hargan said. Three years before, he had paid $350,000 for his home. When he left, the housing market had collapsed all over the Northeast and he could get only $270,000.
”I`ll never forget the real estate agent, after I said I`d lost money on my Dallas and Houston homes, telling me how I`d never lose money in New Jersey,” he said. ”I took the worst loss there of all.”
O`Hargan`s situation is not untypical. Brokers in the Chicago area cite cases such as the trader who moved to the area and lost $140,000 on a house he had paid $720,000 for in Summit, N.J., and the couple coming from Memphis who had to pay out $5,000 on the sale of a house they had owned there for five years.
”I deal with high-level executives and they are coming in here wounded,” said Susan Coveny, a broker with Coldwell Banker in Arlington Heights.
Fear of getting hurt on a home sale is making an increasing number of employees reluctant to relocate, and some of America`s major companies are cutting down on relocation activity.
Based on a survey of 421 corporations, the Washington, D.C.-based Employee Relocation Council estimates there will be a 6 percent drop in employee transfers this year after a 2 percent drop in 1990.
Some 46 percent of the corporations noted a decreased transfer volume from 1989 to 1990, and 54 percent expected transfers to decline in 1991.
And for the first time ever, the council said, the leading concern of workers reluctant to relocate involved moving from a depressed housing market. That was cited as the number one reluctance factor at 72 percent of the corporations.
There is a solid basis for the concern. An average of 27.3 percent of transferees` homes were sold at a loss in 1990, compared to 16.9 percent in 1988 and 13 percent in 1987. And equity losses in such sales hit an average of $13,065, compared to $10,692 in 1988. (Figures weren`t compiled in these categories for 1989.)
Companies who must move employees are being forced more and more to cover all or part of the losses when homes have to be sold in depressed markets, the council also points out.
In 1991, a formal policy to cover loss-on-sale situations was in place in 46 percent of the comapnies, compared to 19 percent in 1985, 34 percent in 1987 and 40 percent in 1989. Another 27 percent of the companies deal with the issue on a case-by-case basis.
But the companies that do provide assistance are increasingly attemping to limit costs by covering less than 100 percent of the loss. Whereas 38 percent covered 100 percent of the employee`s loss in 1989, only 29 percent did in 1990.
O`Hargan said his company made up two-thirds of his loss when he moved from New Jersey, the other third representing improvements he had made to the home.
”Without them having made up the rest, I could never have relocated,”
said O`Hargan. ”It`s an unbelievable cost for the company.”
O`Hargan said his company will still move key employees. ”But for individuals in middle management, their mobility has got to be hampered, especially if they are relocating from a depressed to a hot area,” he added. And he`s said he`s seen a number of cases in which transferred employees found they had to cut down on their style of living despite promotions and higher pay. ”There`s a lot of disenchantment at the other end,” he said. I`ve seen it happen lots of times.”
O`Hargan moved last fall with his wife and four children to a rented house in Buffalo Grove and stayed there for a year so he could look for the best possible deal in the Chicago area. Last month he finally bought and moved into a two-story brick Colonial in Naperville.
Unlike some other transferees, O`Hargan didn`t rent in hopes of keeping his old home on the market until prices climbed. ”I only wanted to sell as fast as I could,” he said. ”I felt the longer I waited on my New Jersey home, the worse it was going to get.”
Renting, even among high-income executives who are relocating, has become more common recently, according to area brokers. ”People are choosing to rent and keep a friend in their home or hire a property management company, hoping the market is going to recover and they won`t lose so much,” said Karen Getting, relocation director for John Greene Realtors of Naperville.
Coveny said she`s been handling rentals of $350,000 to $500,000 homes in Buffalo Grove and Long Grove, which go for $2,000 to $3,000 a month. ”If I put an ad in the paper for rental, it rents immediately.”
Although some brokers insist that the Chicago market has remained stable enough so that the loss-on-sale squeeze isn`t affecting transferees moving out of the area, Coveny disagrees.
She cited the case of the president of a research company in South Barrington whose company moved him two years ago, giving him his equity on his $680,000 house. The house is still for sale, and the market value has gone down to the $580,000 to $600,000 level, meaning that when the house finally sells the company could lose up to $100,000.
Another hopscotching executive who came here two years ago from Phoenix paid $435,000 for a house in Long Grove, and now has had to sell it for the same price to make another move. But his company isn`t paying his moving expenses, so he`s out $30,000 overall, she said.
”There`s zero appreciation in this price range so people are just trying to keep their head above water at the present time,” she said.
Transferee tribulation in fact may be helping to depress the high-end market in the Chicago area, brokers say. Not only are their numbers somewhat fewer, but those financially wounded elsewhere are less likely to spend freely here and more inclined to shop very carefully.
”Transferees coming in from the East Coast who feel the values they`ve received are not what they expected . . . are coming into our market and making offers on properties directly related to the amounts they feel they`ve lost in the old location,” said Bonnie O`Brien, relocation director for the Chicago region of Prudential Preferred Properties.
She said the effect hasn`t been dramatic, but Coveney has a different outlook. ”We are feeling a spiraling effect of what`s happening in New Jersey,” she said. ”It`s affecting purchasing power in this market. That`s why the higher end, over $500,000, is very small.”
And Coveny pointed out that the availability of rentals at the high end is a further consequence of the slump here. ”They are renting because people haven`t been able to sell them,” she said. ”I haven`t seen that for a long time.”
In their efforts to minimize corporate losses over these distress sales, companies are looking for ways to encourage employees to sell their own homes rather than relying on the company or a company-hired agency to do it.
Many companies use a relocation service provider to handle home sales for transferees. Typically, the transferee will be offered a ”buyout” by the relocation agency based on market appraisals of the home. The agency then handles the home sale, charging the corporation a fee.
To avoid that fee and, even worse, the losses they must make up if the relocation agency can`t get its buyout figure, some companies are offering bonuses to transferees who sell their own homes.
The bonuses can range up to about 3 percent of the sales price of the home, according to Richard McGuire, special projects manager for the Relocation Council.
These bonus programs have resulted in a decrease in the number of homes on the market being offered by corporations and relcoations agencies, said Getting.
”In the last year we`ve seen an awareness of corporations of how much it`s costing to take homes into inventory and move transferees while carrying the costs of marketing,” she said.
