Moving With the Times

In today's dwindling housing market, HR and relocation practitioners are staying ahead of the curve to ensure the ranks of relocatees don't dwindle as well.

Monday, October 16, 2006
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In August 2005, Victor Saliterman accepted a new job as senior vice president of marketing for employer services at ADP Inc. But there was one small problem. He would have to move his wife and three children away from their home in Simsbury, Conn., to the company's headquarters in Roseland, N.J., which was about 160 miles away.

At the time, the real-estate market had just started softening in Simsbury. Saliterman put his house up for sale and crossed his fingers in hopes of quickly selling it to avoid weekend commutes, separation from his family and paying double rent.

"We were definitely concerned about our ability to sell it in a timely way," he says. "I could not accept this job if I couldn't sell the house. It would have been very difficult."

Fortunately, his employer paid for his temporary housing and site visits, offered to buy his house if it couldn't sell in a timely fashion and connected him with real estate agents who recommended selling tips. After making a few minor repairs, he got his wish -- his house sold in just a few weeks.

Not everyone is this lucky. Since 2004, the real-estate market in some parts of the country has shifted from a seller's to a buyer's market, catching many realtors and employers by surprise. Markets such as South Florida, Las Vegas and Phoenix, which have appreciated the fastest, are now cooling the fastest.

Nationwide, existing home sales are expected to fall 7.6 percent this year while new-home sales will drop 16.1 percent, according to the National Association of Realtors. There's also more inventory of homes this year -- over seven months' worth -- than at any other time in the past decade, states the NAR.

But the number of relocated employees has barely dropped, even though the soft market has influenced people's decision to move or stay put. To help employees become more mobile, employers have been reviewing their relocation benefits to ensure that they fit current market realities, still serve as a recruitment tool and send strong messages to employees that they are valued.

Trial and Error

At ADP, which employs roughly 40,000 people worldwide, approximately 250 of them are relocated each year, says Rebecca Kirschbaum, the company's senior director of corporate relocation and real estate assistance. When the market began changing two years ago, she says, the company created its own safety net. It reduced housing appraisals 3 percent to adjust for inaccurate forecasts by relocation appraisers.

Through its structured program, employees have up to 120 days to sell their houses for more money. But after 30 days, they have to drop the price. If the house is still on the market 30 days later, employees then have the option of accepting a guaranteed buyout at 97 percent of the house's appraised value.

Before this program went into effect, the loss taken by the company on homes that went into inventory averaged 8.32 percent. But in 2004, it dropped to 2.4 percent, says Kirschbaum, when fewer homes went into inventory.

"We went from an average of 85 percent sold to 93 percent sold by that one change," she says. "We [benchmark] our marketing program against the buyout offer, hoping that our associates will list at a price that will effectively sell the home, while attaining the optimum price that is higher than the buyout."

Kirschbaum believes relocation requires HR to watchdog or micromanage the entire process, whether it's being outsourced or handled in-house. For instance, HR may not realize that the employee is ignoring the realtor's advice by not removing clutter or keeping the house tidy. Likewise, a realtor may list the price too high, against an appraiser's recommendation. If HR blinks just once, she says, the relocation can grow more costly, especially when a house is added to a company's inventory.

On the front side, HR also assigns an appraiser to work with employees when house-shopping. This way, they'll know, for example, which neighborhoods offer good resale opportunities, how to spot a good deal, a realistic price range for the type of home they wish to purchase, or what adds value to a home, such as a third-car garage or gourmet kitchen. Therefore, if they get reassigned a year or two later, no one gets stuck with an overpriced house.

Meanwhile, Kirschbaum is exploring other options suggested by several employees who were relocating. While their existing houses were steadily appreciating, they were relocating to cities where house prices were declining. So instead of buying a house in a declining market, they chose to keep their homes appreciating homes and rent in the relocation area. They were hoping the company could provide some financial relief so they would not be stuck paying both rent and a mortgage.

"We haven't figured this out yet -- we're still in the talking stages," she says. "It is a concept to think about."

Revising the Plans

Not every company is altering its relocation program, according to the North American Trends Survey conducted by Prudential Relocation. Out of the 150 companies that responded, slightly more than 60 percent reported they were making no changes to their policies. The reason: They have already introduced "all-weather policies designed to respond to market volatility," the report states.

However, the remaining respondents made the following changes: a buyout offer after four to six months for employees participating in the buyer value option program, which involves them in the sales process -- everything from making minor repairs or decorating touches to marketing the home to family, friends and acquaintances (10.46 percent); required use of an approved real-estate agent (20.26 percent); increased temporary living due to longer marketing time (15.03 percent) and more home marketing restrictions, such as list price cap (14.38 percent).

Not surprisingly, 72 percent of these companies received some resistance from employees who were asked to relocate. To help control costs, almost 44 percent stated that they tier their relocation program by level or employee classification -- for example, they may have tiers breaking employees into supervisory, middle-manager and senior-level employees); another 49 percent place caps on specific benefits and 30 percent build flexibility into the policy to eliminate exceptions.

Margery Marshall suggests getting employees more involved in the sales process via BVO. In many cases, she says, the relocation department or company takes over, excluding employees from selling their homes in cost-effective ways, says Marshall, president at Prudential Relocation in Irvine, Calif.

"We'll work with the employee and family to sell their home," she says. "We would offer employee marketing tips, give them suppliers they can utilize for home improvements, get a market analysis so they're educated on how to sell a home.

"It is a prevalent benefit feature that is taking place in a number of companies."

Some companies are asking employees to place their homes on the market for a specified period of time, sometimes 30 or 60 days, before a relocation expert gets involved. Marshall says the hope there is that, by arming them with enough real-estate knowledge and tools, employees will be able to sell their homes on their own, prior to their employer stepping in an paying for appraisals, inspections and other real headache costs, which can add up to thousands of dollars.

Other changes currently under way include job-search assistance for spouses, help with aging family members, cultural training and loss on sale provision, which targets employees who bought their house at a high cost but must now sell it when the market is down. She says companies are trying to correct this upside-down effect by paying the difference between the price employees paid for their home and its selling price.

Even traditional practices are being scrutinized, says Thom Kessler, vice president of North American Sales at ReMax in Greenwood Village, Colo. With a guaranteed buyout, two appraisals are typically conducted, then averaged together to determine the buyout price.

But some HR executives are questioning this practice, which can cost $700 to $1,000 for each appraisal. Why not use a broker's market analysis, which is free and comes with the listing?

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"We partner with a national mortgage company," says Kessler. "If the corporation would agree to it, we could offer discounted rates or points on those listings. The company would pay another few thousand dollars, but it would keep that home off the market by offering something that's not available to the rest of the marketplace."

Kessler says the average cost for a corporation to move an employee is about $70,000, which includes the realtor's commission, closing costs, transportation of household goods, home planning trips and return trips. Likewise, a home sitting on the market costs the owner one to one and one-half percent of the value of the home per month.

Sanity Check

Meanwhile, Bayer Corp. and Business Services in Pittsburgh -- a unit of Bayer formed in 2003 as part of the global restructuring of the Bayer Group -- is reviewing its relocation program -- not to expand it, but possibly to downsize it.

Each year, approximately 350 of the company's employees transfer within the United States or into or out of the country, says David Kapsha, the organization's director of compensation.

A policy review team is now asking tough questions. Are the programs too rich? Should the company place caps in high-priced markets? To what extent is Bayer willing to support big losses?

"The goal really is to just do a sanity check," he says, adding that the market's changes have had little, if any, impact on corporate moves. "I have a fiduciary responsibility to the company as well as to the employees to provide good benefits, but at the same time, make sure they're cost-effective as far as the company is concerned."

Bayer currently offers three levels of benefits. The first -- a renter's program -- pays for all moving costs related to household goods and up to 60 days of rent if employees are separated from their families. No home sale is involved.

The next step up -- called level one -- includes the benefits of the renter's program and pays for site visits to the new location, return home trips and all costs related to selling a home, such as real-estate commission, inspections and closing costs.

Level-two benefits mostly apply to those in management or executive positions. Coupled with its level-one benefit, Bayer offers a guaranteed buyout -- which is based on the average of two appraisals; loss-on-sale protection, which ensures that employees don't lose money on their homes; and homeowner differential assistance, which pays the difference between an employee's existing and new monthly housing expenses.

For example, consider employees who move to a high-rent city, where a mortgage is $1,000 more each month compared to their old mortgage. The company will pay that $1,000 each month for one year. Then that amount declines by 20 percent each year for four more years.

Typically, says Kapsha, complaints from relocated employees don't focus on the amount of benefits they receive, but occur when they're not properly counseled on the move, such as how to handle the logistics or enroll their children in a new school.

"I don't think there's any magic wand," Kapsha says. "It's like any other benefit. What do you need to be competitive and can you afford it?"

This market shift is anything but new, having occurred approximately five times in the last 20 years, says Cris Collie, executive vice president at Worldwide ERC, a Washington-based membership association for the relocation industry.

Many companies are reverting to policies that were created back in the 1980s, when mortgage interest rates were 17 percent. Employers were trying all sorts of techniques to sell employee homes. Collie even recalls how, in the mid-1980s, General Motors gave a new car to buyers of employee homes.

Despite this soft market, Collie says, real-estate troubles are not standing in the way of employee reassignments. To enlarge their pool of buyers, companies are also working with national mortgage providers on ways to buy down a mortgage in exchange for paying less in closing costs.

"For newer companies that are experiencing this situation for the first time, my suggestion . . . would be to call upon their colleagues at other companies who have been around for awhile," says Collie. "This is one time [in which] people with gray hair might be able to help them because they lived through it. There are a lot of professionals who have weathered those storms."

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