More jobs are taking people places this year. And that means more homeowners are studying relocation financing offered by their employer.
The number of people being transferred by their company is up about 15 percent from last year, a result of a strengthening economy, says Cris Collie, executive vice president of Worldwide ERC, a relocation trade group based in Washington, D.C.
Because employers typically offer incentives to compensate workers for moving, a transaction involving a relocating employee can be so different from a standard home sale that “I don’t even consider it as the same business,” says Jo Lay, vice president of relocation for Coldwell Banker Residential Brokerage, Des Plaines.
Economic forces drive the numbers of transfers, and the economy also shapes trends in relocation packages. Recent high housing prices and low interest rates, for example, affect how some incentives are structured.
It $50,000 to $70,000 for a company to move a middle manager, says Dennis Taylor, business development consultant at Runzheimer International, a relocation consulting company based in Rochester, Wis.
Companies spend money on relocation in various ways, but most firms cover moving expenses and closing costs on the sale and purchase of homes, as well as house-hunting trips to a new location, according to Runzheimer studies.
A recent Runzheimer survey also finds that 58 percent of employers offer some type of cost of living allowance for employees moving to a higher cost area. Chicago workers transferred to San Francisco face higher housing and other prices, for instance, Taylor notes.
Employers try to keep a lid on relocation expenses, while providing workers with enough compensation to take the move. Here are some of the ways companies are assisting transferees.
Buying down mortgage rates.
– Though rates are low, many companies are paying a sum to their transferee’s lender that lowers the interest charge temporarily on an employee’s new mortgage. If the standard rate on a mortgage is 6 percent, for example, a worker might pay 3 percent the first year, 4 percent the second, and assume the full 6 percent by the fourth year, Taylor explains.
Instead of getting extra money in their paycheck to cover a higher cost-of-living, many workers like getting a buy-down because the money the employer contributes is earmarked as tax-deductible, notes Donna Barber, manager of consulting services for Cendant Mobility in Danbury, Conn.
“The amounts paid [to the lender] are reported as income to the employee. Even though it is paid to the lender, it is paid on behalf of the employee,” Barber explained. The employees then can take a deduction of all reported interest when they prepare their income taxes, she notes.
– Saving a home sale commission by selling to a third party.
Workers are more prone to move when they can take a tidy profit. So, one incentive that’s been gaining in popularity is the “buyer value option,” or BVO, says Lay,
In a BVO, home sellers receive marketing assistance from a relocation company, just as they would if they hired a traditional real estate agent. As soon as the transferee finds a bona fide buyer, the relocation company buys the house and sells it to that buyer. The employee then saves paying a sales commission, experts say.
Moreover, the company assumes the risk that the designated buyer won’t go through with the purchase, Barber adds.
– Offering a lump sum so employees can manage expenses themselves.
Instead of reimbursing workers for specific expenses, more companies are writing them one check, Taylor says.
Companies like this approach, because they usually spend less than they would in administering separate reimbursements, Taylor says. Workers may like lump sums if they can keep their costs down and then pocket money left over, Taylor says.
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