Company Relocation

Now may be a good time to reflect on the fact that the “bursting of the housing bubble,"which impacted many parts of the United States, was preceded by record setting increases in home prices. While most of the country has seen two year price decreases, some areas like Las Vegas (down 37%), Phoenix (down 39%) and Miami (down 38%) stand out as being especially hard hit. Some experts are now saying that it may take decades for home prices to recover and that we should expect price growth to revert to more post World War II “historical norms." By historical norms we mean that housing prices are much more likely to rise consistent with income levels and inflation. This reality has not been lost on the real estate speculator (now driven out of the market) but what does this mean for corporate relocation transferees? Transferees need to be counseled through the home sale process to ensure that they are basing their decision-making process on current market conditions. For example:

1. The new home is less likely to appreciate during their years of occupancy
2. They should not only buy a home they can afford, but one that they will live in until their next transfer
3. Transferees should choose a home that will suit their long-term needs, as the ability to leverage home appreciation to “buy up” is far more difficult

For more information about counseling your transferees through the the corporate relocation home sale process, please contact SIRVA. 

Accurate and timely accounting of relocation expenses has a far-reaching impact on the overall performance and success of a corporate relocation program, to both the company and the individual transferee. An expense management process should support users without being burdensome, so they can concentrate on the other aspects of their jobs. Corporate relocation managers and/ or payroll managers should consider several key issues when evaluating the effectiveness of the expense management process in their companies.

Once a company has reviewed its current process and determined that improvements are needed, the next step is to decide how to make enhancements. In today’s business environment there are not many functions within an organization that are not a target for outsourcing, including expense management. And for a relocation manager, the decision to outsource this particular function will come with new questions that need to be addressed.

Questions to determine outsourcing readiness:

Is there an overall culture of familiarity with outsourcing transactional functions (e.g. benefits processing) that already exists within the company?

If the company has previously outsourced other functions, then formulating a plan to outsource the management of relocation expenses can be evaluated not only on its own merit, but can also rely on precedent and draw on successful processes that have been followed in the past. If this is not the case, then a transition project plan needs to be developed and approved.

Is this a core competency that the company has or wishes to retain?

Expense management is a very detailed process that requires an in-depth knowledge of the ever-changing tax laws and regulations at the federal and state levels. Part of the evaluation process is to assess the current depth of knowledge of the team and determine if it is adequate and can be sustained if team members change. In the end, the evaluation process may lead to questioning whether or not this is a function that should remain in-house.

To learn more about determining outsourcing readiness click here
 

We all know that real estate is local. However-in our current real estate situation-we are seeing more markets continue to see a slip in home sales with only a few who are reporting an increase. The National Association of Realtors (NAR) reports areas such as Colorado Springs, Colo., Sacramento, Calif. and Spartanburg, S.C. are experiencing double-digit pending sales gains compared to a year ago with a significant percentage of these sales attributed to investors who are buying foreclosed properties. So while some markets have seen tremendous growth in home sales compared to last year, others have seen contract signings slashed by as much as 50 percent.

The current real estate market for the typical residential home is still very much a buyer's market. Attractive interest rates, large inventories of homes for sale and lower-than-average sale prices make it a great time to buy. Sellers aren't so fortunate. In fact, some areas have seen home values drop so low that typically willing transferees are hesitant to take a corporate relocation because of loss-on-sale concerns or owing more on their properties than the current market value sales price.

According to a recent survey conducted by the Worldwide ERC®, the number one reason employees are reluctant to relocate is a direct effect of the troubled real estate market. The survey indicated that more than 95 percent of respondents reported "slowed real estate appreciation at the old location," as the reason their employees are averse to moving. This is a stark contrast from last year when only 16 percent cited the real estate market as the reason for their reluctance. Instead, high housing costs, high cost-of-living and family resistance to move, were top concerns.

"Today, it's an unfortunate fact that those true soldiers that have faithfully relocated every two to three years are cooling to the idea because of the economy and the fear that they will take a considerable home loss-on-sale," says David Barlow, SIRVA's senior consultant. 

Barlow advises companies that have not done so to consider implementing a loss-on-sale policy to remain competitive and to help their transferees with the reality of falling home values and sale prices. He also advises companies that already have a loss-on-sale policy to re-evaluate the loss-on-sale limit or cap to ensure it is sufficient in today's difficult real estate market.

It's no secret that the current real estate market has had a significant impact on the relocation industry. Companies have had to reevaluate and update their corporate relocation policies to overcome the challenges of the current market.

Barlow doesn't wager a guess on when the market will turn, but he expects companies will be working through the challenges of the current real estate market for some time to come.
 

The U.S. housing market is continuing to slow, and most economists and housing professionals predict the housing slump will linger longer than previously forecasted.

A downturn in real estate markets creates several challenges for employers' relocating transferees, the most significant of which is the growing number of homes that end up in inventory. This rise in home inventory leads to higher overall relocation costs and increased property management duties for employers.

Total home sale costs also become less predictable in sluggish real estate markets, and unpredictable home sale costs translate into unpredictable total relocation costs.

Relocation service providers (RSPs) offer several home sale programs, each with varying levels of risk, to help corporate relocation transferees. Employers should consider the advantages and disadvantages of each program to determine the level of risk involved, and those employers who want a predictable and low-risk home sale program should consider a fixed-fee program.

Learn more about the fixed-fee program.

With today’s business focus on managing costs, there may be an opportunity for you to do a review of your corporate relocation spend. 

Closing costs on the purchase of a home by the transferee in the new location are nine percent of the total relocation cost, averaging over $8,000. Your results may differ depending on your move patterns, demographics and relocation reimbursement policy.

Home purchase reimbursement policies can be categorized into four styles:

1. Full reimbursement
2. Capped reimbursement
3. Lump sum
4. No reimbursement

The first thing to consider, when reviewing home purchase costs, is the company’s philosophy toward corporate relocation benefits. Are you part of a company that desires to reimburse all expenses or is the idea to assist with the costs associated with the move? The answer will certainly impact the relocation policy language and the expense associated with each move.

Preferred relocation lenders that are partnered with you will assist in controlling your costs. Preferred lenders will have negotiated lender fees and will not engage in fee add-ons. Higher fees from outside lenders can cost the company or the transferee hundreds or even thousands of dollars more.

One of the most costly line items in home purchase is points, also known as origination or discount points (fees). These can vary depending on the loan amount. Each point is one percent of the loan amount and typically can reduce the interest rate by a quarter of one percent (.25). Many companies that had reimbursed two points have dropped down to reimbursing one point, while others have reduced one point to zero points. In today’s low interest rate environment, a reduction may be an opportunity to reduce costs without disturbing reasonable benefit levels.

With FHA loans becoming more prevalent, reimbursement of the Mortgage Insurance Premium (MIP) should be avoided. Like the VA funding fee or Private Mortgage Insurance (PMI) these are buyer paid costs that should not be company paid.

Construction loans can also be a costly expense. Many construction loans have two closings, one for the construction and one for the end or permanent loan. Best practice is to pay for only one of the closings, not both.

A general inspection can be a good way to improve the quality of a home purchase and increase home eligibility in the event of another move. These inspections should be capped at $500 to limit the company’s exposure to unnecessary inspections.

Many policies include the reimbursement of home purchase closing costs for current renters. Elimination of this benefit can produce cost savings—however this should be aligned with your company’s philosophy concerning the level of financial support offered during the relocation process. 

Also be aware that sellers, and many builders, can try to push their closing costs onto the buyer, especially when relocating buyers are not familiar with local customs. To reduce the company’s exposure, your policy should indicate reimbursement of normal and customary buyer closing costs. SIRVA is available to review your relocation policy to ensure you are using best practices to safeguard your costs. David Barlow, SIRVA’s senior consultant and author of Navigating Today’s Real Estate Market, has done extensive benchmarking on relocation policy components. He is a great resource to call upon as you examine your policy,

SIRVA Mortgage also provides a free consultation with any transferee to compare Good Faith Estimates (GFE). The consultation will ensure the transferee has “apples to apples” comparison and that the fees are in line with the relocation policy. Oftentimes, we see an estimate that has a lower interest rate that is offset by increased fees. These situations are discussed and reviewed to determine the best option for the transferee.

For more information visit http://www.sirva.com/CorpRelo_Mortgage_Landing.aspx

When a borrower owes more on their mortgage loan than a property is worth, the borrower is in what is commonly called “negative equity.”

When a seller is in a negative equity position, they are obligated to come up with the negative balance to pay of their loan. The seller is required to do this for two reasons:

1. The lien holder (the lender) will not remove the mortgage lien unless it receives full satisfaction of the amount due on the mortgage loan.
2. The prospective purchaser of their property will not purchase the property with the mortgage lien still on the property.

What is a Short Sale?
A short sale is a means by which a seller can satisfy the negative equity. Instead of the seller paying the negative equity, the seller’s lender reduces the mortgage loan value and accepts a lesser amount from the sale of the property—hence, eliminating the negative equity.

History of Short Sales

Historically, in situations where the seller was unable to come up with the negative equity, lenders have not allowed a short sale. Lenders were willing to allow a property to proceed to foreclosure because property values were always increasing and could support a resale sufficient to recover the loan balance. Even when a short sale was denied, it was not generally the case that the seller would default on their loan—they would decide not sell their home. Short sales were only permitted in extraordinary situations when default was imminent and the resale value would not support the loan value.

Short Sales Today

Due to across the board extraordinary losses in property values, and increases in mortgage loan defaults and foreclosures, lenders are now more inclined, as a matter of policy, to consider a short sale transaction.

The lender will still require evidence that the sale price cannot support the current loan value and will look for evidence of potential default. However, lenders are more inclined to entertain a short sale based upon current real estate market conditions and the likelihood that the property value will not support the loan value in the foreseeable future.

Lenders have historically required anywhere from 30-60 days to complete a short sale transaction. Although many larger lenders are establishing departments to address short sale transactions, the time frames are not expected to be reduced due to the increase in negative equity situations. 

If a borrower waits until an offer is received to ask their lender to consider a short sale transaction, then there is a strong possibility that they will lose the transaction while awaiting their lender’s decision. Although a lender will not approve a short sale until they know the terms of the sales transaction, they can begin to investigate the borrower’s request, set the proper parameters for approval and be prepared to make a quicker decision when an actual offer to purchase is presented. Borrowers should contact their lender as soon as possible if they are in a negative equity or limited estimated equity position on the property. Because there is a significant amount of data and several factors for a lender to consider, the sooner the lender is able to begin evaluating the situation, the more opportunity there is for smooth and successful short sale transaction. 

Lender Requirements

Lenders still require ample support indicating that the short sale is the last viable option for the borrower. Therefore, the borrower must be able to demonstrate that they have looked at other alternatives such as credit card advances, family gifts and relocation employer benefits before requesting a short sale. Depending on the borrower’s particular and unique circumstances, the lender may require that the borrower enter into an unsecured consumer loan for the short sale balance.

Many lenders also require evidence that all reasonable steps have been taken to minimize the transaction costs. Many lenders will look to reduce broker commissions and other closing charges to maximize the amount of funds available for the loan payoff. It is important to explain to a lender that in a corporate relocation transaction the employee/borrower has no transaction costs and thus a reduction will not provide more funds to the lender (and, in fact, may reduce incentives to sell the property at the best possible price).

Lenders vary as to transactional involvement—some will only review the data presented and others will actively engage in the home sale process. SIRVA has experienced lenders that want regular marketing updates and even require that they control the listing process, listing price and any listing price reductions. In order to increase sales opportunities, some lenders have even required special incentives and concessions are included as a party of the marketing strategy, including special financing offers to prospective buyers. All of these possibilities are lender specific and vary significantly based upon the borrower’s position, the facts surrounding the transaction and the transaction terms themselves. This provides an additional reason to contact the lender as soon as possible if there is the possibility of a short sale situation.

Despite the complications and time involved, short sales must be considered as a viable alternative in dealing with negative equity situations in relocation transactions until the real estate market recovers and values become stable again. 

According to the Trippel Survey&Research LLC Seventh Annual Relocation Managers Survey: Relocation Management Company Industry©, SIRVA Relocation ranked second in overall performance and satisfaction among the industry’s top six largest relocation companies. The company achieved the highest scores among the six largest relocation providers in eight of the 24 areas surveyed, and it also placed as one of the top three providers in 22 out of 24 areas surveyed among the largest relocation providers. SIRVA Relocation LLC is a subsidiary of SIRVA Inc., a leading global relocation services provider.

“These results are a direct reflection of our steadfast commitment to providing our customers with unparalleled service and value every day,” said SIRVA Inc. CEO Wes Lucas. “Our goal is to be the most trusted and sought-after relocation services provider in the industry based on the work we do and solutions we offer. I am elated to see that customers are recognizing the value we bring to the table.”

Trippel Survey&Research conducted this survey—which launched September 12 and concluded October 1—with the goal of obtaining evaluations from corporate relocation managers regarding levels of satisfaction with firms in the relocation industry. More than 300 survey evaluations—representing 298 different relocation management companies—were received. The six largest relocation management companies in the survey accounted for nearly 75 percent of all evaluations returned.

Categories in which SIRVA Relocation achieved the top score included: Responsiveness and flexibility to your needs; Service recovery; Year-end tax reporting; Management reporting; Identifying trends and responding to them; Suggesting policy recommendations; Suggesting ways to reduce your costs; and Taking actions that control or lower direct real estate costs.

Selling homes in the current real estate market, with so many sellers chasing so few qualified buyers, has been hard on corporate relocation transferees and their employers. Last year SIRVA reevaluated the way it markets and sells homes in an attempt to lower real estate carrying and operating costs and reduce the financial risks of home ownership to clients. The results were impressive.  

After nine months, SIRVA reduced its number of homes in inventory by 86 percent--from 843 to 118 homes. SIRVA has also reduced its client's AVO home inventory by 60 percent year-to-date. SIRVA now has its lowest inventory level in almost five years. Jon Gilbertson, vice president of risk and quality for SIRVA, attributes the success to a new approach that emphasizes local market expertise and home marketing.

As part of SIRVA's new approach, the company reorganized its risk management team to focus on key components of the risk management process and break down each property individually to ensure it is marketed correctly. The group also enhanced its property performance tracking and improved the appraisal review process to ensure homes were priced accurately, thus minimizing loss-on-sale.

For more information about SIRVA's risk management program, please contact Jon Gilbertson at 763.525.3710.

On November 6, 2008, SIRVA announced the appointment of Gordon Smith as the Company’s new chief financial officer. Mr. Smith, who will work from the Company’s Westmont, Ill., headquarters, brings more than 31 years of financial leadership experience from GE Capital and Asbury Automotive Group to SIRVA. He will report to SIRVA President and Chief Executive Officer Wes Lucas.

“We take great pleasure in welcoming Gordon to the SIRVA team,” said Wes Lucas. “A highly capable and proven finance executive, with outstanding financial leadership experience, Gordon is ideal to lead SIRVA’s financial areas as we build on our strong financial position, deliver outstanding service to our clients, grow our business and continue to create the world’s premier corporate relocation and moving services company.”

See full press release

Accurate and timely accounting of relocation expenses has a far-reaching impact on the overall performance and success of a corporate relocation program, to both the company and the individual transferee.

The company benefits in several ways when a “best in class” expense management process exists, including:

Last month we learned about the options Mr. Johnson had when purchasing a home before selling his house in the origin location. His next concern is his down payment, specifically, how much does he need to put down and where can it come from.

Down payment requirements vary depending on the loan product, an individual’s credit situation and home location. Because each situation is different, it is important that transferees are counseled to ensure they understand the options that are available. Even though each situation is different, there is one recent trend that has immerged across all lending options—the requirement of a larger down payment. Today, most true “no” or “low” down payment loans have disappeared.

Down payment funds can come from many sources. Proceeds from a closed home sale are the most common down payment method used by transferring employees. Equity advances and secured bridge loans continue to be popular ways to connect equity from an in-process home sale to a home purchase.
*Liquidating cash or investments from bank accounts, mutual funds, 401k or stock has increased in popularity as home sales days-on-market have increased and available equity has decreased. Proper documentation showing ownership and liquidation may be required with this option.

Gift funds are still acceptable with a clear and direct paper trail from a relative. A promise of repayment of the “gift” will turn these funds into a loan and is not an acceptable source for closing.

Borrowed funds and unsecured debt continue to be unacceptable down payment sources and will not be considered as allowable funds to close. Borrowers can use a secured loan for a down payment, but only if the loan is secured against a tangible assets (car, boat or other such collateral). Signatures or cash advances on credit cards are not permitted.

Now that Mr. Johnson understands his down payment options and how he can qualify without selling his house, he decides that holding off until his home sells is his best option. 

Next time we will begin to look at corporate relocation costs and savings opportunities associated with the purchase of a new home.

If you have a group move to manage and are seeking assistance, SIRVA Relocation is able to provide the following services:

Defining Objectives
SIRVA works closely with your Company’s management team to define the overall objectives of the move and ensure their implementation during the move process. As a part of our consultation, we will discuss the Company’s business and human resources goals and objectives, policy issues, the group move timeline, and factors to consider in the cost analysis and process development.

Relocation Cost Analysis
We provide expertise in analyzing the total cost of a group move by detailing the cost impact of policy decisions and local market conditions on both the Company and the employee.

Policy Design
SIRVA can incorporate your business objectives into an appropriate group move policy. A key component of policy design is the solicitation, review and analysis of your employees’ input via the employee survey that we will design to meet the needs of your employee population and the constraints your management has placed on the process. This information, along with policy and benefit guidelines, will result in a Group Move Policy Handbook detailing the corporate relocation program for your employees.

Employee Presentations
We have the depth of experience to assist the Company in securing the employee’s enthusiastic commitment to the move through a carefully planned and professionally presented program for the entire family. This program includes a complete overview of the new destination city and state, plus the ability for employees to ask questions and address concerns about the move. In short, we bring the experts in each resource area to the transferee.

Relocation Resource Center
SIRVA can prepare an on-site, on-going “Relocation Resource Center” for employees and their families, which provides information about the destination city’s schools, housing options, medical facilities, etc.

Information Kit
Each employee will receive a complete package of information about the destination city including, if appropriate, a video about the city. Employees will be assigned a personal relocation counselor who is available to answer questions, research any specific needs they or their family members may have, and arrange for individual home finding trips to the new city (if included in the plan).

Area Tours
SIRVA can organize area tours guaranteed to satisfy your employees’ questions about their new city.

Other services include:
• Home Marketing Assistance
• Home Purchase Assistance
• Home Finding Assistance
• Temporary Housing Assistance
• Spouse Job-Finding Assistance
• Employee Expense Tracking Administration and Tax Calculation Capabilities
• Mortgage Assistance
• Vendor Selection and Management
• Training Material and Programs

• Efficient use of staff
• Sophisticated processes that track corporate “spend” from initiation to payroll reporting to the “true-up” of expenses (as a result of the tax gross up methodology used)
• Consistent policy interpretation
• Objective and accurate expense reimbursement audits
• Reduction of exceptions requested
• Consistent tracking of exception approvals
• Convenient, accurate, single-source management reports
• Efficient reimbursement via payroll or check processing
• Reduced risk of penalties from IRS tax audits
• Accurate gross-ups, payroll reporting and year-end tax true-up

• Timely reimbursement of expense reports, normally within four days
• Information typically available online with easy access to policy, FAQs, and electronic expense reporting
• Convenience and speed in answering questions
• Year-end summary report including all expenses paid to or on their behalf
• Year-end reconciliation of relocation expenses, including an itemization of what is and what is not taxable and the tax gross up where applicable

Before you announce that a corporate group move (or relocation) is taking place, it is important to be prepared. A part of that will be identifying the resources you will need. Consider all the internal departments that need to be involved or will be impacted by the move. Evaluate if you need to bring in outside resources to assist you in managing the move. It may not always be obvious who should be on the team.

It may be that there is a “working team” and a “guidance review team.” Having a “team within a team” is an efficient way of keeping people focused and available, rather than in meetings.

Once your team or teams are selected, it is time to build your plan. The following steps can help you get started.

Create a timeline.
If possible, have your Company’s leadership team provide you with a “hard date” as to when they want the move to be completed. Test the logic behind the date. Is it feasible? Will the building be ready to occupy? Will the timing of the move disrupt business during peak months? Can everyone be moved by that date? Remember, once you agree on a date (whether you had input or not) you will be measured according to whether or not you hit the date. If it is not possible to establish a specific date, you will need to recognize that you are working against a moving target that will add complexity to the timing of the move as well as stress and anxiety for the employees moving. In addition, a group move without a hard date complicates the entire process, as there is always an implication of having “more time.” Determine your schedule for accomplishing each element of the project. You will also want to establish a timetable for acceptance once employees are invited.

Gather data about the people who will be impacted by the move.
This will include both those who are moving as well as those who are not. For those who are moving, you need to gather a great deal of data, including:

• Current position
• Tenure with the Company
• New position
• Current salary
• New salary
• Current manager
• New manager
• Family information
• Homeowner or renter information
• Current address
• Expected move date

Review your current corporate relocation policy to evaluate whether it will support the objectives of the move. (Read more).

This March SIRVA University, SIRVA Relocation’s annual conference exploring corporate relocation industry trends and professional development, played host to 150 of the nation’s top relocation industry executives. The event, which was held at the Westin Kierland Resort in Scottsdale, Ariz., provided an exclusive forum for industry insiders to discuss vital, ongoing and emerging industry issues with experts
and colleagues.

Attendees included representatives from human resources, domestic and global relocation, procurement and supply chain departments from more than 75
different companies.

”Our industry is facing a lot of challenges, and SIRVA University provides an opportunity for human resource and relocation professionals/specialists to gather and discuss best practices and practical solutions,” noted Mike McMahon, president, SIRVA Relocation.

This year, conference roundtables and educational sessions covered topics ranging from tips for promoting relocation programs within an organization, home loss-on-sale assistance to relocation trends in China. Additional sessions addressed relocation fundamentals, such as policy trends and best practices, and provided a comprehensive history of the industry—on both a domestic and global scale.

“The educational roundtables in particular were an opportune time for attendees to interact directly with SIRVA executives and fellow relocation professionals,”
said McMahon. “And the keynote speakers were incredibly well received by all.”

SIRVA University Presentations Available Online

Those who were unable to attend this year’s event can download SIRVA University presentations and event images at www.sirvauniversity.com/agenda.asp. Individuals can also download audio recordings of the various sessions to hear them as they were presented, including question-and-answer sessions. Individuals seeking more information on SIRVA University 2008 can e-mail sirvau@sirva.com. If you'd like more information about SIRVA or corporate relocation consulting visit: www.sirva.com.

This March SIRVA University, SIRVA Relocation’s annual conference exploring corporate relocation industry trends and professional development, played host to 150 of the nation’s top relocation industry executives. The event, which was held at the Westin Kierland Resort in Scottsdale, Ariz., provided an exclusive forum for industry insiders to discuss vital, ongoing and emerging relocation industry issues with experts and colleagues.

Attendees included representatives from human resources, domestic relocation, global mobility, and procurement and supply chain departments from more than 75 different companies.

This year, conference roundtables and educational sessions covered topics ranging from promoting corporate relocation programs, home loss-on-sale assistance, developing employee relocation packages for global mobility and relocation trends in China. Additional sessions addressed relocation fundamentals, such as policy trends and best practices, and provided a comprehensive history of the industry—on both a domestic and global scale.

SIRVA University Presentations Available Online

Those who were unable to attend this year’s event can download SIRVA University presentations and event images at www.sirvauniversity.com/agenda.asp. Individuals can also download audio recordings of the various sessions to hear them as they were presented, including question-and-answer sessions. Individuals seeking more information on SIRVA University 2008 can e-mail sirvau@sirva.com.