Employee transfers have always somewhat of a hard sell for employers. But making a move in the current housing market is fraught with peril for all parties.
Fear of losing money has moved to the top of the list of reasons employees resist a transfer, according to a survey by Worldwide ERC, a nonprofit association of relocation specialists. Falling property values often mean employees owe more on their houses than they’re worth. Moving at market bottom means locking in that loss.
But that’s just the beginning. Many relocation packages don’t cover the full expense of moving. Those expenses have risen to an average of $62,000 according to Worldwide ERC. Even employers who provide lump sum payments to cover moving costs seldom pony up that much money. Employees are often shocked to learn that those lump sum payments are taxable income, meaning their net recovery is even smaller.
Most relocation packages follow similar scenarios. The relocation company appraises the property. Unlike mortgage appraisals, relocation appraisals try to predict the home’s value in three to four months. The companies use this approach because they only try to sell the home after the employee has marketed it for that intervening time. If the home is in a declining market, that appraisal is often much lower than the home’s current value.
The relocation company often buys the home for the appraisal price. The employee’s loss is often locked in at that point. Some employers offer more generous plans to cushion the blow, but current market conditions are making even the most generous employers a little gun shy.
Employees are better off when employers assume specific moving expenses such as costs of house-hunting trips, closing costs on both selling the existing home and buying the new one, and temporary housing costs.
Relocations companies are taking hits, too. Even purchasing the homes at lower values have not protected them. They must now carry insurance and utility costs while the home is on the market. The home is typically empty by then and much more difficult to sell. Additionally, it has been sitting on the market for several months by the time the company gets it. Typically, the only answer is to keep cutting the price.
Depending on the relocation package employers have negotiated, they may be facing the same risks employees and relocation companies are.
The answer may be to limit relocations to only those situations where absolutely necessary. Perhaps paying for temporary housing and travel may make sense for a limited time for some employees. This allows them to keep their existing home until the market turns around. Employers can explore other options such as recruiting locally for vacancies or telecommuting.