CapRelo Blog

Use Tiers to Avoid Exceptions in Your Corporate Relocation Policy

Posted by Rick Bruce on Thu, Apr 21, 2016

Tiered relocation agreementsMany companies view a tiered corporate relocation policy as more work. It's true that your HR staff will have to take the time, and may enlist the help of a corporate relocation management company, to establish fair and appropriate tiers based on employee salaries or job levels and set the benefits offered in a corporate relocation package within each tier. But once that's done, a tiered policy actually decreases the work required by the HR staff or corporate relocation management firm.

Find out more about how tiered relocation packages can save you time and money in our free article.

3 Ways Tiered Relocation Polices Can Make Relocation Easier

Here are some ways a tiered corporate relocation policy makes individual relocation or group moves easier.

  1. Eliminate the need to negotiate every employee relocation package individually and/or reduce exceptions to your policy. If you don't have a corporate relocation policy at all, you'll find yourself reinventing the wheel with every employee relocation. Having a one-size-fits-all policy is better than having none, but you may be faced with so many exceptions to the policy, it's like creating a new policy every time you relocate an employee.

  2. Reduce resentment (or lawsuits) when employees discover differences in relocation packages. (And they will!) Remember, in the corporate world, nothing stays secret for long. When employees find out about exceptions made in corporate relocation policies, they'll resent their co-workers who negotiated a better package. If you upset the wrong employee and the exceptions can't be justified, you might even face a lawsuit, along with a drop in company morale and a sense of distrust amongst employees.

  3. Improve your retention rate for relocating employees. Faced with the above scenarios, you have a few choices if you want to keep good employees with a relocation package that gives them what they need. A tiered relocation policy where the tiers are clearly defined based on employee levels or salary sets the standard and reduces exceptions. Like a good employee handbook, it makes the process more cut-and-dry, and permits you to keep more employees happy with less work in the long run. That doesn't mean a tiered policy will completely eliminate exceptions to your corporate relocation policy, but it helps.

Save Time & Money Using Tiered Relocation Packages

Topics: Tiered relocation packages, employee relocation expenses, Buyer Value Option

A Buyer Value Option Program Can Benefit Both Employees and Employers

Posted by Amy Mergler on Thu, Mar 10, 2016

v--crs-kristins-blog_posts-blog_photos-sold-resized-600.jpgA Buyer Value Option (BVO) program is designed to aid transferring employees in the quick sale of their homes, with no obligation to pay real estate commission or closing costs. A BVO program offers benefits for employees and employers, as transferring employees will want a quick and easy sale of their current homes and the employer will want their employees’ focus to be on productivity rather that the hassles of trying to move and sell a home at the same time. Here’s how a BVO program works.

Our relocation policy guide can help you develop an effective relocation policy that incorporates a BVO program.

The Sale of the Home is in the Employee’s Hands

Your relocating employee is connected with qualified, approved real estate agents and home marketing professionals to help expedite the sale of the home. Once the employee, working with the approved agent, finds a verified buyer, the company purchases the property from the employee at the approved price. The company then re-lists the home to negotiate and close the sale with the approved buyer

Advantages of Buyer Value Option Programs

  • BVOs can fit in well with tiered relocation programs.
  • If the company normally directly reimburses home sale costs to relocating employees, they can avoid tax-gross up costs with a BVO program.
  • Your relocating employee is given a strong incentive to work toward a quick home sale at a fair price.
  • Unlike a guaranteed buy-out program, a BVO keeps the home out of the company’s inventory.

When a BVO is handled optimally, the employee enjoys a quick sale of their home and the employer doesn’t carry the inventory of ownership for an extended period of time, to the benefit of both parties. The faster a home sale can be finalized, the sooner the transferee can complete their relocation and return their focus to their work in the new location, increasing productivity and significantly reducing stress on both the employer and the employee.

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Topics: relocation packages, Tiered relocation packages, Buyer Value Option

Relocating Employees: Benefits of Buyer Value Option for Home Sales

Posted by Shirien Elamawy on Tue, Jul 08, 2014

What is a Buyer Value Option? What are its benefits?

money_house.jpgBVO (Buyer Value Option) is a program designed to aid a transferring employee in the quick sale of their home, with no obligation to pay real estate commission or closing costs. There are many benefits to choosing the BVO option, as a transferring employee will want a quick and easy sale of their current home and the employer will want their employee's focus to be on productivity rather than the hassles of trying to move and sell a home at the same time. Choosing the BVO option is favorable, especially since it is a less expensive alternative to an AVO (Appraised Value Option) which for decades was the property sales standard program. BVO programs have become very popular within home sales options.

Learn more about real estate considerations in your relocation policy in our free article.

The Buyer Value Option offers benefits for both parties: the employer and the relocating employee. Here are a few examples:

Reduced Risk of Inventory: Inventory for the Company typically means carrying costs and the potential loss involved in the sale of the property, and a BVO program reduces (but does not completely omit) this risk. This reduction of risk stands to benefit the employer, by lowering overall relocation costs.

Flexibility: Because the risk of carrying inventory has been reduced, companies often believe in being more lenient regarding eligibility and marketing efforts. This does come with other risks, however. Allowing a transferring employee to list their property above market value could mean the property spends more time on the market and carries higher risk of fall through. Marketing a property realistically, priced to sell, limits the flexibility but reduces this risk significantly for the Company.

Eligibility: If the property does not qualify to be in a home sale program, a BVO will not help or change the likely outcome and the risk remains of the property becoming inventory for the Company. Setting and adhering to certain standards surrounding eligibility are crucial for the Company’s benefit.

Taxes: When a BVO is structured correctly, the program can offer the transferring employee significant tax savings on the selling cost of their home in comparison to a direct reimbursement.

When a BVO is handled optimally, the employee enjoys a quick sale of their home and the employer does not carry the inventory of ownership for an extended period of time. This makes the BVO program a win-win for both the Company and the relocating employee. The faster a home sale can be completed, the sooner the transferring employee can complete their relocation and return their focus to their work in the new location, thereby increasing productivity and significantly reducing stress on both the employer and the employee. 

 

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Topics: Home Selling and Purchase Assistance, Buyer Value Option, executive relocation package

Everything You Need to Know About A Buyer Value Option Home Sale Program

Posted by George Herriage on Tue, Oct 08, 2013

istock_000010968215large-resized-600.jpgBuyer Value Options (BVOs) are a popular home sale component of relocation programs. While some companies view a BVO program as an expensive option, employers often include this feature in more competitive relocation policies.

If senior management wants to include a BVO in your relocation package, you should become familiar with typical provisions that apply to this component. Should your relocation policy already include a Buyer Value Option, be sure your administration of the program sufficiently protects both the employer and your transferee.

Learn more about developing a relocation policy with our free guide.

BVO Features:

  • It is understood that the employer intends to purchase the employee’s home.
  • The employer does not make a formal or guaranteed offer to buy.
  • The employer does not obtain appraisals.
  • The relocation management company will order two Broker Market Analyses (BMAs) from two real estate companies with relocation trained agents.  After the employee meets with the two agents for the BMA appointments, the relocation company counselor will discuss the results of the BMAs with the employee.  The employee will select one of the BMA real estate agents to market the property.
  • Once the employee receives a bona fide offer, the home’s value is established by the terms of the fully negotiated contract between the employee and the prospective buyer – hence the name “Buyer Value Option”.
  • The offer must be an “arm’s length” offer to purchase from an unrelated third party.

BVO with “Sunset” Clause:

  • After a marketing period determined by the employer’s relocation policy, the employee receiving no bona fide outside offers enters into a Guaranteed Buyout Program.   The employer then does obtain one or more appraisals to establish the amount they will offer the employee for the property.  This modification in the process is often called a Delayed Guaranteed Buyout Program.

Potential Tax Consequences Are “Foggy”

According to Worldwide ERC® tax counsel, the possible tax consequences for your transferees remain unclear. Even the most recent IRS revised rules, published in 2005, address "appraised value" and "Amended Value" relocation policy provisions, but not BVOs.

Be sure to receive an opinion from your corporate legal counsel before you publish a new or restructured relocation policy containing a BVO feature. Your counsel can offer language suggestions to protect both your employees and employer.

The BVO feature is an offshoot of the IRS-termed “offer before appraisal” provision. However, a BVO is considered more akin to an “Amended Value” feature than other scenarios.

A primary tax issue appears to be the question of employers providing potentially taxable income to transferees by paying the real estate broker commission required in the listing agreement. Your corporate tax counsel will have appropriate language for your relocation policy that avoids this possible taxable event.

Tip: Use relocation policy language that clearly states your BVO terms and incorporate appropriate legal language as recommended by your corporate counsel.

Buyer Value Options are popular and in wide use today. Remember, including this feature in your relocation policy demands that you structure your policy correctly to avoid unwelcome tax surprises to your company and your transferees.

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Topics: Buyer Value Option

What Does a Relocation BVO Program Entail?

Posted by Barbara Miller on Thu, Jan 24, 2013

house1.jpgA Buyer Value Option (BVO) program for your relocating employee can have several benefits for both your company and your employee.

For your employee, it provides peace of mind, both financially and otherwise. It also allows him or her to concentrate on moving and successfully acclimating to the new work environment.

For more information on real estate considerations for your executive relocation policy, read our free article. 

On your end, a BVO program ensures you get maximum value and productivity from your employee in the shortest amount of time upon relocation. Even more importantly, this type of seller assistance program can massively increase your employee's loyalty and productivity in the long run.

How Does a BVO Program Work?

There are several moving parts to a BVO program. While your company (or likely your relocation company) handles the closing of the property the employee is responsible to list the home up for sale and obtain a bona fide offer.

This doesn't mean that you and your business are left out of the process. In fact, many companies help their employees find a real estate listing agent. Unlike an Appraised Value Offer program, there are no appraisals of the home to determine its fair market value. Instead, the value of the home is determined by the bona fide offer from a prospective purchaser.

Once the contract terms are negotiated, your company - instead of the buyer - purchases the property, and sells it to the buyer. (If you use a relocation management company, they will buy the property on your behalf instead.) If the steps are handled properly and in accordance with IRS guidelines, a benefit of this for your employee is that he or she won't need to report any sales expenses associated with the sale as earned income since there are no reimbursements from the company to the employee. Instead, closing costs and other related fees are paid by you (or by the employee relocation company). This is more than just a pass-through - your company must actually own the home, then sell it to the original interested buyer.

As you might guess, there is some degree of risk involved - but the closing occurs a vast majority of the time. One benefit of this method is the immediate productivity you will secure when your employee can settle into their new position without having to worry about a home sale. This is also an effective way to make sure the employee stays in his or her new position, and doesn't leave due to failure to sell their home.

Finally, it's also a great way to secure employee loyalty, which can have huge real-dollar benefits for your business in the future. Add up all these benefits and you'll see why many so many businesses are still utilizing BVO programs inside of their relocation packages - even given the risks involved.

It's also possible to gain all of the above-listed benefits with none of the risks. An employee relocation company can take care of the entire process for you.

In fact, an employee relocation service can usually take care of it better than most HR departments. They have the knowledge, experience, and connections to make it happen more quickly and work more fluidly than anyone who isn't involved in the relocation business.

Free All-Inclusive Guide  Relocation and U.S Taxes

 

Topics: corporate relocation program, relocation taxes, Real Estate, Buyer Value Option

3 Reasons Why a Business Needs a Relocation Policy

Posted by George Herriage on Tue, Oct 23, 2012

mp9004-resized-600-1.jpgRelocation policies are often seen as perks that only benefit the relocated employee. But the closer you look at them, the more you realize that having a well-defined, clear-cut relocation policy in place can also benefit the company that offers it. Here’s a quick look at some of the companywide benefits of an established relocation policy.

Find out more about developing relocation policies with our free guide.

  • Drastically lowered cost. Initially, the cost of relocating an employee can add up to a pretty large sum. But when you compare that cost against the time and money a company would spend recruiting, interviewing, hiring, training, and mentoring a new employee who may or may not work out, you begin to see that funding a relocation can be far more cost effective.
  • Improved efficiency in operations. For many companies, relocating existing employees can be far more efficient than hiring new employees to fill open positions. The newly hired employee may take several months, or even a year or more, to become proficient enough in their jobs to reach a measurable level of efficiency. On the other hand, relocating experienced employees and placing them into key roles can boost overall productivity.
  • Ensured continuity of business. When a company moves a portion of its business to another location (whether that location is in another state or another country) it almost always requires a relocation of the existing workforce. Without a relocation policy in place to facilitate this, company productivity can standstill while new employees are sought out, hired, and trained. This could end up costing the company a far prettier penny than the costs associated with relocation.

Many businesses recognize these factors and have loose relocation guidelines in place. Unfortunately, failing to put into place a specific, detailed relocation policy can have negative impacts on everyone involved.

  • Employees in the process of transferring from one location to another may find their workplace performance greatly impacted. Relocating to a new city, state, or even country can be extremely stressful on employees and their families. By letting each transferee know exactly what to expect and what’s being cared for in the policy, they can focus on resuming work without stress.
  • Hiring managers may be unable to concentrate on performance and job related issues, instead having to field questions from transferring employees about the logistics of the relocation. With a clearly defined policy in place, there’s no ambivalence and each function is carried out by a specific party.
  • HR departments can find themselves in a confusing whirlwind of relocation coordination. When a company has an explicit policy that lays out every move in detail, HR employees are able to go about their duties and functions without having to feel the weight of the world on their shoulders – and they can concentrate on tackling other work-related matters instead of allowing their every day to be consumed with matters of relocation.

Ultimately, having a clearly defined relocation policy in place that accounts for the differences in benefits for executive level employees versus entry level employees is also critical. Not only can it help a company better forecast the economic cost of proposed relocations, but it can also use the clearly spelled out benefits as a tool to recruit talent from other locations, instantly making the nationwide (or even worldwide) recruitment of talent a feasible scenario.

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Topics: relocation benefits, Corporate Relocation Costs, corporate relocation program, relocating employees, Buyer Value Option

Using BVO in Government Relocation Programs

Posted by Chris Finckel on Tue, Aug 14, 2012

v--crs-kristins-blog_posts-blog_photos-sold-resized-600.jpgFor years, the Guaranteed Home Buyout program has been a great benefit for government employees. This type of program is a safety net in the event the employee can't sell their home on their own. The program features a guaranteed offer from a third party relocation company based on the average of two appraisals. Once the relocation company buys the home, the employee is relieved of the financial burden. The relocation company then invoices the government for a fee or percent of the acquisition price that covers the resale, carrying and closing costs on the sale including any potential loss.

Find out more about how to develop relocation polices in our free guide. 

When the real estate market declined, relocation companies found it necessary to increase their fees from an average of 18-21% to 27-36% to cover costs. As a result, the Guaranteed Home Buyout has frequently become too expensive for government agencies looking to reduce expenses. In order to offer a solid employee benefit with a lower cost, we often recommend that government agencies explore the Buyer Value Option (BVO) program commonly used by corporations.

Buyer Value Option (BVO) Program

BVO is a home sale program that guarantees a sale to the employee only when a buyer makes an acceptable offer on the property. The program requires strict adherence to the 11 key elements of a BVO program in order to create two arms-length transactions that are deemed a business expense and therefore can be excluded from income taxes.

Recently, some government agencies have adopted BVO programs. These programs stipulate that the employee market their home under the BVO program for a period of 30-90 days. To begin the marketing process, the employee is required to list their home at 105-110% of the average of two broker's market analyses. This helps increase the chance of a potential sale within the marketing period. If the home doesn't sell in the required marketing period, the program converts to a guaranteed buyout program and appraisals are ordered.

The advantage of the BVO program for the government is significantly reduced program costs. A typical BVO program fee is a percent of the property sale price and can range from 8-15%. This offers a significant savings to government agencies and allows them to continue offering home sale assistance at a much lower cost.

Free eBook:  A Guide to Developing  Relocation Policies

Topics: federal relocation, Guaranteed Home Buyout program, Buyer Value Option

Taking the Stress Out of a Group Move

Posted by George Herriage on Tue, May 15, 2012

The challenge companies face is how to successfully move the business, while being able to maintain a continual level of business operations. If you are not able to maintain the same level of business that you are used to, you are going to lose revenue and potential customers. It's imperative to approach the group move the same way you would handle any other business decision, but with a relocation program it can be easier than ever before.

Defining the Objectives

It's hard to imagine a relocation being 'stress-free,' and it's inevitable that you're going to go through several phases of relocation that will pose a number of challenges and obstacles. You need to utilize the resources available in order to make everything go as smoothly as possible. Here are the critical steps that can be implemented through CapRelo for an office relocation.

  • Diagnose the current plans for the relocation process.
  • Make sure the policy is in line with the corporation’s goals and culture.
  • Make sure that the productivity of employees is not affected during the move.
  • Handle the logistics for the move in a low-stress manner.
  • Take the results and measure them to see how everything was handled.
  • Go through the process and make any adjustments for the next possible move.

Low Stress Relocation

There are three key stages for implementing the most stress-free move possible within your organization.

1. Planning. During this phase you will set out objectives for the move, as well as create the policies for the relocation and the packages that are going to help you achieve them. This involves some pretty heavy lifting: engaging the right suppliers, such as real estate agents and movers, creating policies, etc.

2. Execution. You don't want employee productivity to be affected by the office relocation. You want to manage the move appropriately and keep everything on time and within budget. This involves paying serious attention to communication and management--otherwise your relocated employees may feel like they've been left to fare on their own in the process. They have concerns about their goods being transported, their family being comfortable, and getting safely from one location to the next. Keeping in touch regularly and giving employees immediate attention keeps a situation from becoming a full-blown emergency.

3. Refinement. The move is complete. You can take surveys, polls or have face-to-face meetings to make sure your employees are situated and back to business as usual. Going over the relocation process in detail and getting insights from employees will strengthen morale and give you a better idea of what aspects could use improvement, if the company has the need for relocation in the future. It'll also help keep your company culture in tact by promoting discussion and feedback.

Free eBook:  A Guide to Developing  Relocation Policies

Topics: group move, Buyer Value Option, employee transfer

Relocating Your Company? Consider Grants and Tax Incentives When You Choose Your Location

Posted by Nicole Overholt on Wed, Mar 21, 2012

Thinking of relocating your company with the help of a company relocation service? In addition to providing support before, during and after the move, helping you select service providers and sub-contractors, and setting best practices and benchmarks for employee relocation packages, a company relocation service can also help you determine if a move is the best idea right now.

One factor to consider when contemplating a corporate move -- with or without the help of a company relocation service -- is grants, tax credits and other incentives available when you relocate.

Free All-Inclusive Guide  Relocation and U.S Taxes

New Jersey, Utah, North Carolina, Indiana, Michigan and Mississippi are just a handful of states that offer incentives for relocating. Chances are, wherever you're thinking of moving, you can find funds available to help cover some of the costs of the move.

Let's look at the ways incentives are offered.

  • Tax credits: This money comes in the form of dollar-for-dollar credits to your tax bill. Credits may be pro-rated over several years, and there may be requirements you have to fulfill in order to receive the credit.
  • Tax deductions: Unlike tax credits, tax deductions are expenses deducted from your taxable income, lowering your tax bill overall, but not on a one-to-one ratio. The IRS permits employees and businesses to deduct 100% of their relocation expenses as long as they are reasonable.
  • Grants: Grants are monies you receive that do not have to be re-paid. Grants can help defray the cost of a relocation significantly.
A company relocation service can help you find the best grants available, help you run the numbers to decide if a move is worthwhile, and assist with filing your taxes to ensure you receive all the deductions and credits you qualify for.

Think this is complicated enough? Some states also offer retention incentives -- money you'll receive for staying in your home state and not relocating. A company relocation service can help you run the numbers and determine the best choice for your company's future growth.

Topics: tax impact of relocation, Buyer Value Option

3 Ways to Calculate Tax Gross Up

Posted by Nicole Overholt on Fri, Feb 10, 2012

Tax gross up can add considerable costs to corporate relocation packages. Tax gross up can increase taxable relocation costs by 45% to 55%or more.

Free All-Inclusive Guide  Relocation and U.S Taxes

What is tax gross up, in a nutshell, and why does it cost your company money? Tax gross up occurs when you add to the taxable reimbursement amount so that relocating employees don't face a tax liability after receiving one-time relocation incentives or reimbursement of their taxable relocation costs. It's standard practice to offer tax gross up, as it adds to employee satisfaction, makes a move easier on relocating employees, and can provide added incentive for employees on the fence to make the decision to relocate.

Calculating Tax Gross Up
You can calculate tax gross up in three ways.

  1. Simple Gross Up: A simple gross up simply adds a percentage to the reimbursement costs based on the employee's tax bracket or another figure. Since this additional percentage is also taxed, however, it could still result in a tax liability for the employee.
  2. The Inverse Method: This is a more accurate, albeit slightly more complicated, method to calculate tax gross up. Begin with the number one and subtract the tax rate, then add that percentage to relocation costs. This compensates for the tax on the gross up, but is not 100% accurate.
  3. The True Up Method: Performed by a CPA or a relocation management company, this tax gross up calculation provides the most accurate results.

 

How an Incorrect  Tax Gross Up  Affects Your Transferee

 

While tax gross up adds to your corporate relocation costs, it results in a more fair corporate relocation package, happier employees, and better retention rates.

Topics: tax impact of relocation, Corporate Relocation Costs, calculating tax gross up, Buyer Value Option

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