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Home purchase plans
A home purchase plan changes the responsibility of the party responsible for selling the house if it doesn’t sell expeditiously. The employee being transferred is first enrolled in the program, at which time the program is explained, and the necessary forms are completed. An appraisal is usually the first step in this program. The appraisal is used to set the amount the company will pay for the house.
Most plans have a 30- to 60-day period in which the employee is responsible for trying to sell the house. During this time, the employer provides pre-marketing assistance. The employer contacts a real estate company to work with the employee in:
- establishing a marketing plan
- developing a reasonable sales price
- helping the employee prepare the house for viewing
The employee knows the company will take the house over after a certain amount of time. For this reason, many companies develop an incentive for the employee to sell the house while it is still "fresh" and occupied.
High offers. What if an offer is received during this time and it’s above the agreed upon appraisal value? There are some things to consider in an amended value situation:
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Amended value. The original appraisal value is amended, and the company proceeds to buy the property from the employee and resell it to the prospective buyer. The employee is now out of the loop. If the escrow falls through, the employer owns the property.
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Assigned sale transaction. The employee signs the offer and then assigns the benefit of the contract to the employer. The employee receives the appraised value upon assignment, and then receives the additional increment upon the closing with the prospective buyer.
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Buyer value. This option does not require an initial appraisal, so the employer has made no offer to the employee. The employer steps into the process when an offer has been made as in an amended offer. The appeal of this option is that it reduces the probability of the property ending up in the company's inventory.
Why so many options? When the employee is selling the home and the company pays the selling costs, the payments to the employee are taxable. When the employer is selling the home, the employer absorbs these costs, and the employee doesn’t incur a taxable event.
To ensure these options, 11 key elements must be considered.
Key elements to consider when amended value comes into play:
- In the employee's listing agreement with the real estate broker, a suitable exclusion clause is contained whereby the listing agreement is terminated upon the sale of the property to the employer.
- Under no circumstance does the employee accept a down payment from the potential buyer.
- Under no circumstance does the employee sign an offer presented by a potential buyer.
- The employee enters into a binding contract of sale with the employer.
- After execution of the contract of sale between the employee and the employer, and after the employee has vacated the home, all benefits and burdens of ownership accrue to the employer.
- The contract of sale between the employee and employer at the "amended" higher price is unconditional and not contingent on any event, including the potential buyer obtaining a mortgage commitment.
- The employee does not exercise any control over the subsequent sale of the home by the employer.
- The employer has its own separate listing agreement with a real estate broker to assist with the sale of the property.
- The employer enters into its own separate contract to sell the home to a buyer.
- Upon resale of the home, the employer arranges for the transfer of the title to the buyer.
- The purchase price paid to the employer by the ultimate buyer does not change the purchase price that was paid to the employee.
Source: Supplement to the Guide for Managing the Mobile Work Force, Employee Relocation Council, 2017
Memory Jogger
Your employee and their family are relocating to a new branch office and selling their home through the employer's Amended Value Home Purchase plan. They should never: