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.
On December 5, 2008, SIRVA announced the appointment of David Byers as the Company’s new chief commercial officer. Byers brings more than two decades of operations, marketing, sales and brand management experience from H&R Block and Foote, Cone&Belding Inc. to SIRVA.
“David’s deep knowledge base in financial products and services, and his experience in developing and managing brands will help drive our relocation services business,” said SIRVA President and Chief Executive Wes Lucas. “Similarly, his background working with distribution networks will bring tremendous value to our moving business.”
Byers was with H&R Block for eight years and progressed quickly through the ranks, from senior vice president and global chief marketing officer to senior vice president of U.S. operations, and most recently, chief operating officer of retail tax services. In these roles, he was responsible for H&R Block’s U.S. operations, sales and business development functions, which comprised more than 13,000 retail locations and 100,000 employees. Prior to H&R Block, Byers’ career included working for global advertising agency Foote, Cone & Belding Inc., Del Monte Corporation, and most recently, he served as chief executive officer of The Mutual Fund Store.
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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.
Because all relocation services funnel through the expense management function to be appropriately recorded and paid, this function is a significant responsibility for those managing the relocation program. As a result, corporate relocation managers and/or payroll managers should consider several key issues when evaluating the effectiveness of the expense management process in their companies.
When evaluating the current expense management process it is important to look at several things before determining what changes, if any, should be made. First, review how the process performs against a number of key metrics, such as expense report processing time, service results, audit results, or number of W2 Cs required. Then determine if the results are satisfactory and objectives are clearly in place.
Questions to consider when assessing the current process:• Who receives the expense and what do they do with it?
• Who audits the expense?
• Who enters it into the system?
• Who puts it into payroll?
• Who puts the invoices into A/P?
• Who reconciles the G/L?
• Who does the gross up?
• Who communicates to the employees that expenses are paid/rejected?
• How much time is the employee’s manager spending in the process?
• Is the function spread among several people and it is consistent between processors?
• How many FTEs (combined) provide this service?
• How much do the inefficiencies in the process cost the company?
Imagine that you are just leaving a meeting where you were told that your employer has decided to relocate a group of people from one location to another. The CEO told you that you are expected to manage the move. He/she stresses to you that the success of this group move is critical to the future of the company and everyone is counting on you to, "make it happen." Any number of business scenarios could lead to this decision.
Even though this may be your first experience in managing a group move, you may have heard stories about the stress group moves can bring to an organization and the people who are working on the relocation. You may recall hearing how a group move does not always turn out as planned, and that a lot can change between the time the plan is initiated and the last employee is in place at the new location.
Whatever you do, you need to be prepared for the responsibility of:
- Business disruption
- Talent loss
- Low employee morale
- Cost overruns
- Having your plan for the move challenged by others
You may not be able to eliminate all of the issues, but if you can bring an effective plan to the project and assemble the right team to execute the plan, the odds that the move will be a success and that you will survive the group move will be greatly improved. The intent of our "How to Effectively Plan for a Group Move" white paper is to provide you with a proven approach to effective group move management.
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If you would like more information about corporate relocation services including group move management consulting, contact us.
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. With relocation costs per employee homeowner topping $70,000 in recent years (according to averages reported by Worldwide ERC), effective management of expenses can easily exceed several million dollars annually for a company. Because all relocation services funnel through the expense management function, to be appropriately recorded and paid, this function is a significant responsibility for those managing the relocation program. As a result, corporate relocation managers and/or payroll managers should consider several key issues when evaluating the effectiveness of the expense management process in their companies...read more.
In the past, employers offering corporate relocation services had to assure that a home buyout price paid to the employee was a fair market value, no more and no less. The use of broker market analyses to help establish an appropriate listing price and independent appraisals to establish the buyout price was an attempt to assure that the home buyout price represented a fair market price.
Due to the rapidly declining real estate market, a questionable trend has reared its ugly head—employers who are desperate to find a way to increase a transferee’s home buyout offer, without triggering a “direct offer” scenario, are now asking for relocation appraisals without forecasting. A directed offer requires the IRS to treat the buyout amount paid to the employee, in excess of the home’s fair market value, as income to the employee.
Standard corporate relocation practice calls for appraisals that attempt to determine a home’s anticipated sale price taking into account current marketing conditions (known as a forecasting adjustment). Forecasting in a declining market results in lower appraised values than those without forecasting adjustments—ignoring a forecasting adjustment will likely result in the appraised value being inflated.
The result is that the employer pays an amount to the employee that is higher than fair market value while having appraisals that appear to support the value by not using the forecasting adjustment process.
As was pointed out by Pete Scott, Worldwide ERC Tax Counsel, in the tax and legal update session at the San Antonio Worldwide ERC Conference, risks of ignoring the forecasting component include a rejection by the IRS of the appraisal as good evidence of fair market value; the appearance of a directed offer; a departure from standard policy that could result in a purchase price substantially higher than the sales price and income that is taxable as wages and subject to withholding/payroll taxes. There was substantial agreement among the members of the ERC Public Policy Committee in San Antonio as well as among appraisers attending the meeting that the practice should be discouraged.
This strange reversal of practice is driven by the need for employers to do whatever is possible to encourage employees to accept their corporate relocations, while not creating additional income to the employee. Employers, however, should not abandon standard practices or depart from their own former policies regarding appraiser instructions by ignoring forecasting.
- Tie benefits to desired behavior: Companies have every right to require transferees to follow established home sale processes. The process to be followed should be clearly stated in the company's corporate relocation policy along with the benefits to the transferee. Reasonable expectations include complying with the company code of conduct and following the corporate relocation service providers' recommendations which are based on the company's policy. Penalties for not complying with the terms of the policy, as well as any home sale incentives that are to be offered, should also be clearly outlined.
- Require full property disclosure and educate transferees on ineligible properties: Accurate assessments of property history, condition and initial ownership risk when a home is sold limits future risk potential and protects both the company and transferees. Transferees should understand that purchasing ineligible properties may cancel future home sale benefits.
- Require active transferee marketing participation: Home marketing needs to be well planned, supported and implemented properly by all parties involved. Because the real estate market is changing rapidly, marketing strategies must be adjusted quickly, and prices need to be reduced in shorter intervals. Failure to adequately react can extend marketing time, increase corporate relocation program costs, push homes into inventory, decrease the pool of potential buyers, and reduce the final price transferees receive on the home sale.
- Evaluate all offers: Every appraisal should be thoroughly reviewed before giving it to the transferee in order to ensure they properly recognize the current market conditions. Do not hesitate to negotiate down to 95 percent of the appraised value. This also minimizes the emotional reaction to perceived "low" offers and the potential loss of an offer that would have been acceptable to the company.
- Require mandatory home-finding assistance: Home-finding assistance reduces home loss-on-sale risk for those transferees (such as new hires) who are future relocation candidates and ensures employees don't purchase ineligible properties. It also helps mitigate the challenges of current market conditions, such as selecting a qualified agent, planning home-finding trips, evaluating financing options and reviewing contracts.
- Develop home sales programs that fit your company's risk profile: Home sale programs vary in risk based on several factors. These include program type, number of controls in place, current market conditions, locations where homes are sold or purchased, past company practices and company culture. It is critical that companies are aware of the risks involved and create a home sale program that meets the company's overall service, cost and risk objectives.
For assistance incorporating these real estate best practices into your corporate relocation program or to learn more about how to mitigate real estate risks via a home sale program, visit David Barlow's blog.
The continued difficult housing market creates cases where some homeowner employees find themselves in personal financial situations that are not conducive to accepting a relocation. Previously, “family considerations” were often the most common reason for an employee to delay or reject a corporate relocation. In today’s housing market, however, the problem is sometimes a home cannot be sold for an amount sufficient to cover the outstanding loan(s).
While more than half of companies have a loss-on-sale program in their corporate relocation policies, these programs correctly treat (through a wide variety of formulae) the difference between the purchase price of the home and the selling price. Where employees have taken out second mortgages and/or lines of credit, however, they may in fact be “upside down”--namely owing more on their home than it is worth. In these situations, companies are wise in not making up “negative equity.” Negative equity is often the result of financial and purchasing decisions, which were made in times when real estate was appreciating. The negative equity, however, has no bearing on the actual loss-on-sale.
Today it is critical that the BMA/BPO process—which determines the MPSP (Most Probable Sales Price)--quickly identify cases where an employee may be “upside down.” Once an employee’s “home health” is known, all parties (employee, company and relocation service provider) can assay whether the relocation should proceed, or if the best course of action is to consider an alternative candidate. Making this judgment early before corporate relocation commitments and expenditures are made is a prudent course of action.
As a kick-off to my blog, A Closer Look at Global Relocation, I wanted to introduce myself and explain what I plan to discuss over the next couple months.
As a global relocation services leader, I am in contact with a variety of global mobility customers and providers on a day-to-day basis and I’ve found that there are some topics that seem to be of interest to most professionals whenever they relocate employees—be it the U.S., China or anywhere else in the world. Since I have been able to benchmark and study these highly relevant topics, I thought it would make the most sense to start this blog with some of this information. With that said, I will be initiating a discussion on barriers to assignment acceptance and how to overcome them, then I will be covering the latest trends in relocating to and within China and the true cost of an expatriate assignment, how to measure and track—all of which I feel will instigate a solid discussion on the challenges and barriers facing global mobility programs and introduce some best practices for overcoming these obstacles.
Are there any other topics that you feel would be relevant to cover? I am open to suggestions.
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