Sluggish Housing Market Forces Employers to Revamp Relocation Policies

Copyright 2008 Institute of Management & AdministrationAll Rights Reserved Managing Benefits Plans

July 2008

HUMAN RESOURCES Vol. 2008 No. 7

1596 words

Sluggish Housing Market Forces Employers to Revamp Relocation Policies & Benefits

Main article

Recruiting and relocating workers has become increasingly difficult for employers with the slumping housing market, human resource managers and housing analysts told us recently. Still, because recruiting the best employees is a critical part of doing business, they said that even in today's sluggish housing market, companies cannot stop relocating workers if they want to remain competitive.

Meanwhile, employees considering relocating are grappling with whether now is the time to sell a home and move someplace else for a job.

"Housing is just the No. 1 issue. That's just the big roadblock that has to be resolved," said H. Cris Collie, chief executive officer of Worldwide ERC, a trade group in Arlington, Va., formerly known as the Employee Relocation Council.

U.S. regions hit hardest by the housing downturn, which began last year and is expected to last throughout 2008, include California, Connecticut, Michigan, Nevada, New Jersey, New York, Ohio, and Texas, according to relocation authorities.

Midlevel employees affected most. "The level of employees most affected are in middle management and at professional levels ... because they are not eligible for the most extensive relocation benefits," said Ellie Sullivan, director of marketing and consulting at Weichert Relocation Resources Inc. in Norwell, Mass.

Weichert, a global relocation company based in Morris Plains, N.J., last month completed a mobility and current housing market survey of corporations in the United States and Canada. Seventy-one percent of 200 respondents said employees at the middle-management and professional levels are affected the most by the challenging housing market.

The vast majority of survey respondents (86 percent) said these employees are having trouble selling their homes, while half noted that companies do not offer such employees guaranteed buyouts.

"At the senior level you get a guaranteed buyout on the old home and loss-on-sale protection," Sullivan said.

Employees who purchased their homes within the past two or three years probably bought at the height of the real estate boom, she explained, and today are receiving offers to sell for less than they paid for the property.

As a result, Sullivan said, companies recruiting employees who must relocate for a job are sharing more of the cost to help them sell their homes.

Employees, relocation experts, HR struggling. "We're all kind of struggling in the relocation arena," said Pat Papenbrok, director of relocation services for the Oak Brook, Ill.-based fast food giant McDonald's Corp.

"Employees are not happy with their company offers; budget controllers are not happy with the higher cost of relocation," she said during a Worldwide ERC audioconference. "Business units aren't happy because they are getting fewer relocation dollars in their budgets, and it's mainly due to the current housing market."

Corporate relocation and HR departments are spending more time explaining policies to employees and are bearing the brunt of their frustration, Papenbrok said.

"Exceptions [to corporate relocation policies] may be on the rise, whether it be about equity loss, capital improvement, temporary living, or whatever," she added. "Employees may be challenging that and you have to, within your company, know when and when not to make an exception."

Another challenge for companies involves being saddled with "inventory properties," said Scott Sullivan, senior vice president of sales and marketing at GMAC Global Relocation Services in Chicago. When the housing market was robust, companies could purchase a home from a relocating employee and quickly sell it, he said. This is not necessarily so today.

"Three or four years ago, many companies would have zero to five homes in inventory waiting to be sold. Now, that will have quadrupled," Sullivan said. "So they are revisiting programs they had phased out and being more engaged."

Relocation strategies in flux. Thirty-eight percent of 174 employer respondents in a Worldwide ERC Corporate Benchmarking Survey last fall said they added a requirement to their home sale program "that employees list their homes within a certain percentage of the buyout offer (or broker market analysis or appraisal) in order to qualify for home sale assistance."

In addition, 21 percent said they have increased the use of appraisals in home sale programs, while 18 percent said workers must use real estate agents the company chooses to qualify for home sale assistance.

Other changes companies are making to relocation policies include:

adding or enhancing home sale bonuses or incentives for employees who find buyers for their homes;

adding or increasing duplicate housing assistance for workers who buy a home in the new location before selling the one in the previous location; and

modifying policies to provide loss-on-sale assistance to more employees.

GMAC advises employers to be aggressive in providing incentives to employees to get them to sell their homes as quickly as possible. "Be involved in selling the home," Sullivan said, noting that offering employees financial bonuses such as 2 percent to 3 percent of the home's current value is one option.

This is not something employers have had to do in recent years, Sullivan noted. "For the last six or seven years, homes have been selling without any effort. People could list their homes and have competing offers within weeks," he said. "A lot of employers didn't have to work very hard to motivate their employees to move because their homes were appreciating."

In the buyer's market today, however, he said, "on average, across the United States, [companies are] looking at 10 to 11 months' worth of inventory--as opposed to a month or two of inventory three years ago."

When companies get houses in inventory, Papenbrok recommends retraining relocation staff members on inventory management. Also, she suggested visiting the inventory homes, interviewing the real estate agent, and touring the community while there.

"It's worth the airfare wherever your houses may be," she said. "Take the trip out there to see it. A lot of times you will see things that the [real estate agent] either wasn't able to convey or chose not to convey that you can fix instantly."

Employee reluctance to move is growing. Atlas World Group Inc.'s 2008 Corporate Relocation Survey, released in May, indicates that half of companies where employees declined to relocate in 2007 cited housing or mortgage concerns as the reason. This reflected "a significant jump" from 30 percent in 2006.

The Atlas survey includes responses from 347 practitioners, most of whom work in HR departments. Half the companies surveyed were international firms, noted Atlas, based in Evansville, Ind.

"Findings seem to indicate that large companies are feeling the market downturn more acutely than small and midsize firms," the survey noted.

Containing relocation costs. Papenbrok said the best way to contain the cost of a relocation is "just don't get a house in inventory to begin with." Here are steps she said McDonald's uses to avoid retaining inventory homes:

Price the home properly initially. "You're going to take a hit," Papenbrok said. "It's just when and how much."

Establish list price guidelines with employees. "There have to be some sort of guidelines so employees aren't artificially or unrealistically pricing their homes," she said.

Use only certified appraisers who have demonstrable skill sets and make sure they know what is taking place in real estate markets.

Absolutely require employees to market their house for at least 60 days. "When an employee gives me a tough time about this, I say, ‘It's your profit-sharing dollars as well as mine, so we are just all trying to protect those,' " Papenbrok said.

Allow more marketing time to sell the house if this is what the employee wants. Make exceptions to the company's relocation policy, when they are needed, Papenbrok said. "If the employee wants to market their home longer, and we're within the rules of the IRS, I'll be glad to give them maybe a little bit more temporary living [benefits]," she said, noting that, in some instances today, it is very shortsighted to stick with exactly what the company's relocation policy stipulates.

Extend temporary living or duplicate housing arrangements the company has made with the employee. "Quite honestly, it's not in my policy right now but I'm doing it because it just makes sense," Papenbrok said.

Do minor decorating as well as maintenance and repair on the home during the marketing phase. "You don't need to wait until a house goes on inventory," she said.

Offer incentives to employees, brokers, and buyers to get the home sold as quickly as possible.

Require broker updates every 30 days. Papenbrok, however, has begun requiring such updates every 15 days. "I want to know what's going on with that house all the time," she said.

Review the commission percentage the company is offering the broker and determine whether this is the norm for the market. "Don't be so shortsighted as to say, ‘Well, our policy says' ... or ‘I think we should only pay 5 percent commission,' " she said, noting that commissions today may be 6 percent or 7 percent.

Require employees to use company-approved brokers. "They can't use friends or somebody they met on the golf course," Papenbrok said. "From my perspective, I want somebody who I know knows what they're doing."

Be creative and aggressive. "I'm not there to make friends with anybody; I just want the house sold," she said. "So I will be like a dog with a bone. I'm just trying to get it done."

June 9, 2008