Corporate Relocation in Depressed Real Estate Markets
Companies desiring to keep their best talent on board are being challenged by today's housing market conditions. A 2008 study by Worldwide ERC, a professional association of individuals who work with transferring employees, indicated that the top concern of employees reluctant to relocate was the "depressed housing market," cited by 95% of respondents. Corporate relocation programs can help take the sting out of selling a home in a depressed market and make buying your next home easier.
Inside the United States, human resource departments continue to struggle with the real estate crisis. Many employees won't transfer to another location because they can't sell their homes. MarketWatch reports that nationwide, fewer employees are willing to move for a job. Of the 179 companies in a 2009 survey conducted by relocation outsourcer Cartus, 79% said employees' reluctance to move increased somewhat or a great deal in the past year. Among those, 95% said that real estate-related concerns (including concerns about the ability to sell a home or selling a home after a drop in value) were paramount.
What can you do if you're offered a transfer but your home's value has dropped?
Negotiate a Relocation Package
If a company wants you that badly, it should be willing to help you with the move to your new job. Here are some possible relocation benefits available to employees:
- Shipping your car to the new locale;
- Childcare assistance while you move;
- Packing and moving your household;
- Covering home search expenses;
- Home buying service, including covering mortgage costs;
- Home selling service, covering closing costs and commissions on your old home, and possibly deficiencies if you are underwater;
- Lodging during your move;
- Coverage for miscellaneous expenses, such as vehicle registration, utility hookups, etc.
- Property management, if you choose to rent out your old house; or
- Storage of your household belongings if needed.
Keep in mind that many relocation benefits are taxable as income to you. Some companies use third-party relocation services which can minimize the tax consequences.
Home Selling Assistance
Many companies use third-party services to help with home sales. One such option is called a BVO, or buyer value option. This tool became very popular in the 1980s and still works today in areas not destroyed by the housing crisis.
The BVO works like this: A relocation company establishes a home's value with at least one broker market opinion. Many employers require that the property not be listed for more than a certain percentage of that value (e.g. 105%). The employee, with help from the relocation company, markets the home until a potential buyer is found. Then the third party steps in and takes over. They buy the house from the employee and sell it to the new buyer. The seller pays no real estate commissions or closing costs and can move without being involved in the closing. The chief advantage of this is that the sales expenses paid by the employer are not considered taxable income to the employee, because the third party owns the house when it is ultimately transferred to the new buyer.
But What About Underwater Transferees?
If you're transferring into a distressed area, you're lucky -- you should have little trouble finding a housing bargain to offset whatever loss you take on your current home. However, if you're going from a distressed area to a healthy one, you may encounter some problems. You may also have solutions, according to U.S. News:
- Consider renting out your old house. Your employer may be willing to pay a property management service for a year or so. However, HSH.com's VP Keith Gumbinger warns that being a new landlord -- and an absentee one to boot -- may be more work than you bargained for.
- Ask for help with the deficiency. Your employer may be willing to go 50-50 on the loss.
- Talk to your lender. Between you, your lender, and your employer, you may be able to get out from under your house with a short sale if everyone involved is willing to kick in some cash.
- Try a HAFA (Home Affordable Foreclosure Alternative). If you have a genuine hardship that would allow you to qualify for a Making Home Affordable short sale, you may be able to unload your property and pay no deficiency. The same is true if you live in a non-recourse state.
- Ask for rental assistance in the new location. This will give you a chance to save up for a down payment for your next home. Or, your company may be willing to fund a down payment -- FHA home loans require only 3.5% down payments.
What Is a Relocation Mortgage?
Often, relocation involves getting help with your new mortgage. Employers may contract with a lender to provide the financing on your next home at no cost to you. However, if you don't like the lender or don't like the rate and terms you're offered, you have options.
Getting the Lowest Mortgage Rates on a Relocation Home Loan
If it's your loan agent who rubs you the wrong way, you can often work with any agent within the same company; you may be asked to pay the closing costs upfront and then be reimbursed after the closing. If you want to work with a different lender altogether, find out how much your company is willing to reimburse you. See if that amount gets you a better deal on your mortgage and work with the lender you like. Here too, you have to pay the costs upfront and get reimbursed later, but getting mortgage rates or loan terms you like better may be worth it.
Always compare whatever mortgage interest rate you're offered by the relocation mortgage lender with what's available on the open market. If the relocation mortgage lender is charging extra because it considers you "captive" business, you may be able to get a better deal elsewhere.
More help from HSH.com
Advantages of a FHA mortgage in 2017FHA loans have become more affordable in 2015, thanks to a drop in the annual mortgage insurance premium that the Federal Housing Administration charges.
Streamline Refinance Program to Replace HARPThe HARP refinance program for troubled or underwater homeowners will come to an end in 2017, but a new streamline refinance program will takes its place.
Flex Modification: An outline of HAMP's replacementThe Making Home Affordable Home Affordable Modification Program comes to an end on December 31, 2016, but is being replaced by a new Flex Modification program from Fannie Mae and Freddie Mac.
HSH.com’s yearly outlook: 2017 - Nine forecasts and outlooksAt the start of each year, HSH.com details the important factors we think are most likely to influence the mortgage and real estate markets in the coming year.
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with no change to the federal funds rate and no changes to other monetary policy tools.