BVO (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.
Buyer Value Options 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.
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
The sale of the home is in the employee’s hands. The relocation management company will connect the relocating employee with qualified, approved real estate agents, home marketers and a staging company that will 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 homeowner receives a check for the equity in the home, and the company then re-lists the home, selling it to the approved buyer.
BUYER VALUE OPTION (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.
The Benefits of BVO for Employers and Employees
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.
Quick Sale and Reduced Stress: When a BVO is handled optimally, the employee enjoys a quick sale of their home, 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.
BUYER VALUE OPTION (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 UNCLEAR
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.
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.
Tip: Make sure the relocation policy clearly states the BVO terms and incorporate appropriate legal language as recommended by corporate counsel.
Buyer Value Options are popular and in wide use today. Remember, including this feature in your relocation policy demands that you structure the policy correctly to avoid unwelcome tax surprises.