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Guarantee-against-loss programs
| Guarantee-against-loss programs | This is a method of protecting the employee against having to pay for two houses if the old house does not sell in time. This program also protects the employee from losing money in that sale. |
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Here’s how it works…
It’s the employee’s responsibility to sell the house.
Appraisals. The employee places the property on the market. The company then obtains appraisals (usually two) of the property. The company establishes the value of the property by calculating the average of the two appraisals. If the results of the two appraisals are significantly different, the company obtains further appraisals. The company guarantees that the employee will receive the appraisal average for the property. If the employee accepts the offer, he or she continues to market the property until it’s sold. If the property sells for the guarantee price or above, the company pays nothing to the employee. If the property sells for less, the company makes up the difference.
No sale. What if the property doesn’t sell by the time the employee moves? The company will usually assume the mortgage payments, maintenance, insurance, utilities, and repair costs.
New-home loans
The employee will probably need to purchase a new home. So, the company may loan the employee the down payment for the new home on a short-term basis. When the old home sells, there will be a settling up that includes a charge to the employee for things like:
- the amount of principal paid in the mortgage payments
- any deferred maintenance done on the home during the sales period
Guarantee-against-loss programs have advantages and disadvantages.
Let’s take a look…
| Advantages | Disadvantages |
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These programs are easy to establish and understand. They keep the employee whole, increasing their likelihood to accept the relocation offer. |
The carrying costs can add up if the property doesn't sell and the motivation for the employee to sell at a low price is reduced. The need to deal with selling the old home is a distraction to the employee at a time when there are new challenges on the job. |
Memory Jogger
In a guarantee-against-loss program, the employee may have to: