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In very simple terms, when the employer reimburses an employee the costs of selling the old home, that
reimbursement is considered income to the employee and is subject to standard payroll withholdings. Then,
depending on company policy the reimbursement is treated in one of two ways by the employer. It will gross-up
the reimbursement and keep the employee “whole” after taxes. Or, it will reimburse the closing costs and
withhold from that amount thus netting the employee as little as 60% of his/her actual out-of-pocket costs.
Regardless of the method chosen by the employer, the Direct Reimbursement of old home closing costs is much
more costly (either to the employer or employee) and provides much less benefit than alternative methods
available to the employer.
The accompanying table compares the typical costs associated with four different methods of closing/reimbursing
for the sale of an employee’s home. The first method shown is the Direct Reimbursement of old home closing
costs as described above, with the attendant “full gross-up” of that reimbursement so as to make the employee
whole after tax. This Direct Reimbursement treatment generates more than 84% in increased costs to the employer
due to the Gross-up of the reimbursement and additional company-paid Payroll Costs. And, the employee is still
charged with the responsibility of finding an agent, listing the home, marketing the home, negotiating a
contract and going to closing. So, the cost of Direct Reimbursement is 12.35% of the Sale Price with little or
no benefit to the employee beyond expense reimbursement.
The following three methods of closing an employee’s home sale avoid the additional payroll costs associated
with Direct Reimbursement. Each is considered an “at risk” position for the company, i.e. the corporation owns
the home for a period of time and is thus at risk in the transaction. Accordingly, the cost of closing the home
in these three transactions is treated as a business expense as opposed to reimbursement of employee expenses.
Thousands of companies employ one or more of these home sale methods, usually through a third party service
company that acts as an agent of the corporation in the buying and selling of an employee’s home.
In a typical Guaranteed Offer program, an offer value is arrived at, a pre-marketing time is required and one of
two outcomes will occur. If an outside buyer is not found by the end of the required marketing period, the
company buys the home from the employee for the offer amount and continues to market it as an Inventory property
– the costs for this outcome are shown in the second column. If the home is sold during pre-marketing, then the
employee’s offer will be amended to the outside offer – this is called an Amended Value closing as shown in the
third column.
A Guaranteed Offer program can be expensive. In the Inventory example the holding period is assumed at 90 days
(from acquired date to close date) and the costs exceed 14% of the Sale Price. The industry average approaches
20% of direct home sale costs for a Guaranteed Offer program. Most companies that move a relatively small number
of employees shy away from a Guaranteed Offer program. They often will state that they are not in the real
estate business and want no part of owning an employee’s home for an indefinite period of time.
The Amended Value closing is much less expensive because the holding period is much shorter and the company is
not exposed to a loss on sale. The true cost of a Guaranteed Offer program is computed as a combination of the
Inventory and Amended Value closings. Using the industry Amended Value rate of 75%, i.e. 3 out of 4 homes are
sold as Amended Values, yields a weighted average cost of a Guaranteed Offer program of 10.14% of the Sale
Price.
In a Guaranteed Offer program, the employee receives the maximum benefit – i.e. they can sell their home and
obtain the price they want but they still have the “safety net” of the guaranteed offer to fall back on.
The Buyer Value Option (BVO) program has become very popular in corporate American in recent years as it avoids
the cost of lengthy ownership that is possible with a Guaranteed Offer program. With a BVO the employee markets
the home until a buyer is secured. The company acquires the home and sells the home at the same value. Typical
costs of the BVO program are shown in column four of the table with a total cost at about 8% of the Sale Price.
There are a myriad of issues arising out of the proper treatment of Amended Value and BVO programs, i.e. the
risk of ownership, BVO fall through, tax treatments, audit issues, etc. Those issues should be investigated
thoroughly before deciding to implement any type of home sale program.
In summary, a Direct Reimbursement program is one of the most expensive home sale programs. In addition, it
offers the employee little or no services beyond expense reimbursement. If handled properly, the alternatives
described here can save companies substantial amounts of money while providing significantly increased benefits
to employees.
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