For 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.
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.