The Low Down on Loss on Sale

There is no doubt that today’s real estate market is having a dramatic effect on relocation. According to a recent survey conducted by the ERC 93% of respondents reported “slowed real estate appreciation at the old location” was the biggest reason their employees did not want to move. (See the Reluctance to Relocate Graph below) It is not hard to see why when you hear data like that from National Association of Realtors (NAR) showing the average price of an existing home dropped $49,100 between 2007 and 2009.

Many companies and recruiters are asking what they can do to combat a candidate’s objections, and their reluctance to relocate? One way, is to consider adding a Loss on Sale benefit to the relocation package.

The Loss on Sale benefit reimburses candidates for any loss they may have on the sale of their home due to the economic conditions in their market. It is defined as the difference between the net purchase price of the home and the net selling price of the home.

ERC Loss on Sale Stats:

• Average Loss-on-Sale: 2007 = $21,243 2009 = $30,671
• 52% change (largest change ever recorded)
• Tax gross-up was up 34% (due mostly to gross-up on Loss-on-Sale)
• 33% of responding companies said they added a Loss-on-Sale benefit or increased the value of the benefit
• Most common change was raising the cap

How do you know if a company should offer the Loss on Sale benefit? Here are a few things to consider:

• Where are the company’s locations?
• Is the company having trouble securing experienced new hires?
• Are you able to recruit locally alleviating the need to relocate employees?
• What can the company afford?

Should There Be a Minimum Loss to Receive the Benefit? Paying on small losses can cause the hiring authority more headache than they may be worth. Most will want candidates to expect that they will have at least a small loss on their home. It is easier to think of a minimum loss like a deductible. That being said, candidates will be eligible to receive their benefit once they have met their deductible.

• Minimums or Deductibles typically can range from $0 to $5,000
• Some companies choose to use a percentage of loss rather than a dollar amount, which typically ranges from 1% to 5%

What About Benefit Caps?
The hiring authority may want to place a cap on the benefit. That cap can depend on the following:

• Where is the home? Homes in markets that were hit harder may warrant a larger cap.
• How much the hiring authority wants to spend?
• Is the hiring authority offering tax assistance?
• If the hiring authority is sharing the loss with employee the cap can depend on the deductible. (The higher the deductible, the higher the cap.)

According to ERC, caps are ranging between $10,000 and $150,000 with $50,000 being the most common.

Should the Loss on Sale Benefit be Grossed-Up?
Since Loss on Sale is a taxable benefit, gross-up is recommended. If the hiring authority thinks adding the gross-up will cost you too much, another suggestion would be to reduce the cap, so they can still offer the gross-up.

What about capital improvements?
Capital Improvements are the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life. Some companies do include capital improvements; however it is more common NOT to include them in today’s market.

Why Add Pre-decision Assessments?
Recruiter Relocation has a strong Pre-decision program that you should be taking advantage of if you are not already. Some hiring authorities will not be not sold on the Loss on Sale benefit. By utilizing Recruiter Relocation’ Pre-decision Assessments you will see the following benefits:

Benefits of Pre-decision for you and the hiring authority:

• Helps minimize failed relocations, therefore reducing company costs
• Reduces or eliminates extended benefits historically given to candidates who cannot afford to sell their home but have already committed to a relocation
• Provides early visibility into the need for Loss-on-Sale benefits
• Identifies where there is likely to be negative equity
• Relocation decisions can be made earlier in the process and other alternatives can be considered

Benefits of Pre-decision for your candidates:

• Allows an earlier decision on whether or not they can take the move before the process starts (lessens potential embarrassment)
• Allows employee to make decisions based on facts

In today’s market Pre-decision has become such a valuable tool the ERC’s 2010 Transfer Volume & Cost Survey shows that the number of organizations to add it to their relocation programs has gone up 13% since 2007. If you would like more information on the Loss on Sale benefit, or any other services that Recruiter Relocation offers please contact Laurie Johnson today.

Comments

[rental houses]

This is really very intresting, thank you for the nice content and I hope it will be really helpful for the people intrested in the
rental houses topic.

[Consumer Advocate]

you make a good point. If you are underwater in your home (which by some estimates is millions of people) you really don't have a choice to relocate without taking the hit. For many this is not an option.