What is a Buyer Value Option Program?
A Buyer Value Option (BVO) program is a popular home sale program that provides professional assistance and support for transferring employees. A properly structured Buyer Value Option program that adheres to IRS requirements provides significant tax savings that benefit employees as well as employers.
Offering a home sale program will allow you to attract and retain the best talent possible. Also allowing your employees to be focused on productivity. To learn more about developing a competitive, properly structured relocation policy, please click on our free guide below.
The Benefits of the BVO for Employers and Employees
- Help overcome employee reluctance to relocate
- Significant tax benefits for your company
- Overall cost control
- Employee focus on productivity
- Expert advice and strategies to enable the employee to receive the best price possible for the home.
- Reduction of stress to the employee and their families
Reduced Rick of Inventory: Inventory for the Company typically means carrying costs and the potential loss involved in a sale of the property. While the BVO program reduces this risk, this reduction of risk stands to benefit the employer, by lowering the 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 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.
Eligibility: Setting and adhering to standards surrounding eligibility are crucial. Setting eligibility standards will reduce the risk of an ineligible property becoming inventory for the Company.
Quick Sale and Reduced Stress: CapRelo counselors engage and utilize market experts to provide detailed marketing analysis reports that allow transferring employees to price their homes to sell. The faster a home sale can be finalized, the sooner the transferring employee 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 employee.
How a BVO Program Works
- The relocation management company will order to ERC (Worldwide Employee Relocation Counsel), Broker Market Analysis (BMA) reports from two independent brokerage firms. The brokerage firms will assign relocation trained agents to complete these detailed reports.
- The Relocation Counselor will review the reports with the transferring employee to set the proper pricing, agent selection, staging and recommended repairs and/or improvements.
- 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.
- It is understood that the employer intends to purchase the employee’s home.
- The employer does not obtain appraisals and make a formal guaranteed offer to purchase the home.
Buyer Value Option (BVO) With “Sunset” Clause
A Sunset Clause provides a Guaranteed Offer is the property does not sell after a defined marketing period. This type of program is often referred to as a Delayed Guaranteed Buyout or Amended Value transaction without the upfront appraisal of the home.
POTENTIAL TAX CONSEQUENCES
This ruling addresses the tax treatment of costs an employer incurs in connection with three different home purchase programs the employer may offer to employees who are being relocated. Transactions under the three programs are analyzed to determine whether, based on the benefits and burdens of ownership of an employee's home, the transactions are treated for tax purposes as a sale of the home by the employee to the employer followed by a separate sale by the employer to a third party buyer, or as one sale by the employee to the third party buyer facilitated by the employer.
According to the Worldwide ERC (Employee Relocation Counsel):
The ruling does not mention the Buyer Value Option, either favorably or unfavorably. However, because the Buyer Value Option is in substance simply an Amended Value transaction without an initial offer, the analysis of Amended Value transactions in the ruling would appear to apply to BVO’s as well, with the result that BVO’s conforming to the 11 key elements should continue to be considered nontaxable, and BVO’s containing the unfavorable elements in the third factual scenario above will no doubt be treated as taxable by the IRS. However, it remains highly advisable to structure BVO’s as delayed Amended Value transactions, with an eventual guaranteed buyout.
In connection with the evaluation of your Amended Value Option, the following may represent the key criteria for you and your tax advisor to consider:
- Any employee ("EMPLOYEE") wishing to take advantage of the Amended Value Option who lists his/her home with a real estate broker must include a suitable exclusion clause in the listing agreement whereby the listing agreement is terminated upon the sale of the home to either the employer or the relocation company.
- Under no circumstances should EMPLOYEE accept a down payment from any potential buyer.
- Under no circumstances should EMPLOYEE sign an offer presented by any potential buyer.
- EMPLOYEE enters into a binding contract ("Contract of Sale") with his/her employer or the relocation service company ("PURCHASER’’).
- After the execution of the Contract of Sale with PURCHASER and after EMPLOYEE has vacated the home, all of the burdens and benefits of ownership pass to the PURCHASER.
- The Contract of Sale between EMPLOYEE and PURCHASER at the higher price is unconditional and not contingent on any event, including the potential buyer obtaining a mortgage commitment.
- Neither EMPLOYEE nor the employer in the case of a relocation company transaction exercises any discretion over the subsequent sale of the home by the PURCHASER.
- PURCHASER enters into a separate listing agreement with a real estate broker to assist with the resale of the property.
- PURCHASER enters into a separate agreement to sell the home to a buyer.
- PURCHASER arranges for the transfer of title to the buyer.
- The purchase price eventually paid by the buyer has no effect on the purchase price paid to EMPLOYEE.
Buyer Value Option programs are popular and in wide use. Remember, including this feature in your relocation policy demands that you structure the policy correctly to avoid unwelcome tax surprises. Ensure your relocation policy program clearly states the BVO terms and incorporate appropriate legal language as recommended by corporate counsel.