top 10 ways your relocation program lost money in 2012

Relocation at the speed of life.A publication of

Written by Mike Canning, CRP, GMS and Paige Holden, CRP, GMS

RELOCATION PROGRAM

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ways your

LOST MONEY IN 2012

Introduction 31. Combined Benefit Allowances 4-52. Poor Pre-Planning on Home Finding Trips 6-7 3. Too Much Temporary Living in the Policy 8-104. Non-compliant Transferees 11-125. Inconsistent Exceptions 13-146. Loss on Sale Benefits and Treatment of Capital Improvements 15-177. No Pre-decision Assessment 18-19 8. Loss on Sale on Inventory Properties 20-229. Carrying Costs on Inventory Properties 23-2410. Markup Charges by Your Third Party Relocation Policy 25-27Conclusion 28

TABLE of CoNTENTS

RELOCATION PROGRAM

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ways your

LOST MONEY IN 2012

As we round the corner towards 2013, it’s time to look back and see what lessons we can learn from 2012. Most relocation professionals would agree that 2012 was both the best of times, and the worst of times. The industry as a whole seems to be shaking off the lingering shadow of the housing market crash of 2008 and, despite some uncertainties on the horizon, optimism abounds.

That’s not to say that there weren’t some challenges. We all struggled with a stagnant housing market, underwater transferees and narrowing margins. HR managers and procurement professionals face budget reductions and have to do more, with less, every day. As a partner to HR, we face the same challenges and have worked hard to come up with new ways to streamline the relocation process, reduce redundancies and tighten overall program management.

Fortunately, we did see an uptick in relocation activity for strategic moves. Companies that ceased to move people in 2008 are taking out old policies, dusting them off and jumping back into relocation. While this is great news, we noticed throughout 2012 that many

businesses had not updated old policies and, as a result, were not approaching relocation as strategically as they should be in the current marketplace. Unfortunately, this is causing businesses to lose money.

Savvy HR professionals and relocation managers will take a close look at their policies before 2013 and make any necessary adjustments to minimize waste. In this eBook, we share our analysis of the top 10 ways relocation programs lost money in 2012. We hope you find it helpful as you review your policies and plan ahead for 2013.

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1Combined Benefit Allowances

To simplify relocation programs, some companies are taking benefits including home finding, temporary living, final move and miscellaneous allowances and lumping them into one large sum, based on estimated costs

Combined benefit allowances are not geared towards the specific needs of any transferee. Thus, if your transferee needs more or less included in their benefit plan, there is no flexibility to find a viable solution. Further, with a strict combined benefit allowance plan, relocation managers do not have the ability to save money on transferees who do not need certain benefits, while redirecting funds to those that who need more. one-size-fits-all programs might be predictable, but they almost always lose money in the end.

Create flexibility. A defined benefit program coupled with real-world cost estimation and accruals based on specific transferee needs will give relocation managers the opportunity to allocate funds more accurately so that monies don’t go to waste. This will allow you to generate cost savings in real time, while giving you the flexibility to direct additional funds to transferees that really need more support. Transferees who do not need certain benefits, while redirecting funds to those that who need more. one-size-fits-all programs might be predictable, but they almost always lose money in the end.

The issue

Why you’re losing money

The solution


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The issue


The solution




2 Poor Pre-Planning on Home Finding Trips


Without counsel, transferees often make home-finding trip arrangements without thinking through their needs in the new location in regards to housing, neighborhoods, schools, cost of living, etc.

Without clear criteria for what is needed at destination, it’s impossible for Realtors and other relocation services providers to plan an effective home-finding trip. For example, if the transferee only wants to live in the city, but the Realtor plans the trip around the suburbs, there will be a huge disconnect on the ground which will lead to wasted time, added frustration and the possibility of a second trip.

Transferees should have a good counseling session prior to the home-finding trip. during this session, they should be encouraged to discuss their needs at both origin and destination, including housing requirements, school preferences and family needs. Further, transferees who are planning on purchasing a home at destination should have a discussion with a reputable lender about how much house they can afford with the monthly payments they are willing to make. All transferees, including home owners and renters, should also discuss community and neighborhood preferences, budget, location and any special needs with a Realtor in advance of the trip so that they only look at homes that are viable prospects.

The issue


The solution




3 Too Much Temporary Living in the Policy


Temporary living is intended to tide a transferee over while they are in between homes. By providing housing, the employee can get right to work at the new location, before a permanent housing situation is finalized. When the economy crashed and homeowners could not sell their homes quickly, many companies increased their temporary living allowances so that transferees were assured a place to stay while the home sat on the market. The typical time from for temporary living was expanded from an average of 60 days to 120 or more.

As the temporary living time frame has expanded, some transferees have opted to maximize their benefit, regardless of their personal situation, and have purposely delayed the move into the new home. There are a lot of reasons why transferees are taking advantage of the extended benefit including home renovations, school timing, delaying payments and waiting out the housing market.

The issue






The optimal time frame for temporary living is 60-90 days for a homeowner. This should be written into the relocation policy. Lately, transferees have made compelling arguments to tie the temporary living benefit to the average marketing time needed to sell the home. But, 60-90 days represents the total escrow period between the contract agreed to at origin and when the new home can be settled at destination. Schedules permitting, the transferee should be given enough time and incentive to aggressively market their home prior to moving. While the origin home is being marketed, the destination housing options can be narrowed. Then, when the origin home goes under agreement, the transferee can focus their time and attention at destination. That said, there are some transferees who will genuinely need additional temporary living support, especially when the transferee is needed immediately at destination. This is one situation where exceptions on a case-by-case basis are acceptable, and possibly more strategic, than a blanket mandate.

The solution

The optimal time frame for temporary living is 60-90 days for a homeowner.




4 Non-compliant Transferees


More often than not, a transferee will find out about the relocation before HR has it on their radar. Naturally, the transferee’s first instinct will be to round up as much information as possible about the destination, as soon as possible. They will take it upon themselves to reach out to Realtors and start to make their own arrangements for a visit.

When a transferee starts to make arrangements prior to speaking with HR and the third party relocation company, they miss out on valuable counsel, strategic partnerships and the subsequent discounts that are available to them.

HR managers must insert themselves in the process early on. It should be corporate policy that department heads and business leaders loop in HR prior to discussing the relocation with the employee. This will ensure that HR is available at the right time to discuss the potential move in more detail and to ensure transferees understand the relocation policy and have appropriate counsel moving forward.

The issue


The solution

HR managers must insert themselves in the process early on.




5 Inconsistent Exceptions


Companies with many different cost centers, a decentralized structure, and/or a non-strict adherence to the relocation policy are more likely to be inconsistent in granting exceptions.

Exceptions can swell the total relocation costs, set bad precedents for the future and undermine any chance for cost predictability or containment. Regardless of papers signed, or the fine print in the policy, transferees will talk to one another. Granting an exception to one employee opens the door to granting the same exception to many. Further, in some cases, there are better solutions to problems than an exception that will add to the bottom line cost of the program.

Have a centralized gate keeper that closely monitors exception requests and work with your relocation provider to implement a tracking process. Before granting an exception, talk with your relocation provider about alternative solutions to see if there is a better way to address the problem. If you decide to move forward with the exception, document the rationale behind your decision so that you can refer to it when a similar issue arises. Finally, always review your relocation policies on a regular basis to ensure that they are current and address market conditions.

The issue


The solution

Granting an exception to one employee opens the door to granting the same exception to many.




6 Loss on Sale Benefits and Treatment of Capital Improvements


Loss on sale benefits are designed to bridge the gap between what the transferee originally paid for the house and what the house is worth in the current market. Capital improvement often comes into play here as the transferee will want to recoup any losses on their total investment in their property from the purchase date to the date of sale.

There is no dollar for dollar correlation between the amount spent and the increased value in the home. In some instances improvements to the taste of the original owner might even lower the value of the home. For example, a homeowner once spent over $40,000 converting a three bedroom home into a two bedroom home by dramatically increasing the size of the master bedroom. While this was considered an improvement to the seller, most buyers and appraisers saw this as negative feature.

The issue


In some instances improvements to the taste of the original owner might even lower the value of the home.





often, capital improvements are designed to the taste of the seller, not the buyer. As such, the value that the home seller places on the improvement is not necessarily the same value that the buyer sees. Additionally, many policies do not clearly define what qualifies as a capital improvement as opposed to general maintenance and repairs.

It’s important to educate transferees on the relocation home appraisal process. A true capital improvement increases the value in the home to some extent. The outside buyer and appraisers come to their value based on the current condition of the home, including the improvements. So, replacing a leaking water heater would count as maintenance, rather than a capital improvement

Companies should look at the documented expenditures carefully. With new construction, many expenses generated within the first 6 months should be considered to be part of the original purchase price. down the road, however, consideration should only be focused on major expenses, such as upgrades for kitchens, bathrooms, siding, windows, etc. Employers should understand that the transferee is already receiving the fair market value for their home that was either determined by market appraisals in the event of the company offer or by the agreement negotiated with an outside buyer. Reimbursements beyond this are an added incentive to make the move more acceptable for the transferee.

The solution




No Pre-decision Assessment7

No Pre-decision Assessment


A pre-decision assessment is a structured discussion with the transferee about the pros and cons of the relocation including concerns about home equity, financial constraints, family considerations, special needs timing and anything else that can impact the success of the transfer. Even though this is a critical step, many companies don’t have a pre-decision process in place.

Companies that do not offer pre-decision counseling are setting themselves up for additional costs and considerations that they will face down the road. For example, what happens if the transferee has a home underwater that cannot be sold? or the family that cannot sustain itself without two incomes for any period of time? or a child has special needs and needs to be near certain facilities? If these issues are not discussed upfront, neither the transferee, nor the relocation manager will have a good grasp on the magnitude of the move and its potential for success. There is nothing more expensive in relocation than a failed attempt.

Work with your relocation partner to provide a pre-decision assessment that will identify any stumbling blocks and assess the viability of each move. Knowing the full scope of your transferee’s needs will help you gain a true understanding of the costs involved. Additionally, If the relocation is not a good fit for the employee, recommend an alternative or pull the plug BEFoRE you move forward with the transfer.

The issue


The solution

What happens if the transferee has a home underwater that cannot be sold?




8 Loss on Sale on Inventory Properties


Loss on sale on inventory properties is the variance between the price the company has paid to purchase the home as opposed to the net price obtained in selling the property to an outside buyer.

When companies realize a major loss on an inventory home it’s almost always because they did not properly determine the value of the home through the initial home appraisal process and inspection. Gatekeepers exacerbate the problem by not reducing the listing price, or accepting a considerably lower offer, because doing so means realizing the capital loss. Refusing to adjust to the market leads to additional carrying costs and potential further loss down the road.

Get the value right at the beginning. Use independent appraisers who are specifically trained to conduct relocation appraisals. Remain firm and do not be influenced by the position or adamant protests of the transferee, unless their argument justifies further appraiser consideration. At the end of the day, the transferee is not buying the home, your company is.

The issue






A few years ago, a senior executive convinced his HR department to disregard two appraisals completed using the proper relocation appraisal format. Instead, they used an appraisal conducted a month earlier during a refinancing process. Predictably, the home sat in inventory for a year, even though appraisers and Realtors all agreed the home price needed to be drastically reduced. Ironically, the executive that originally owned the home was transferred back to the same location. When he put in an offer on the home he originally insisted was undervalued by the relocation appraisals, his offer came in significantly below their price and eventually settled for more than $110,000 below his buyout a year earlier.

Experienced appraisers will carefully study the home price, condition, market saturation, general appeal of the property and possible concerns for buyers in order to accurately assess the property’s market value. If there are any major concerns once the home is in inventory, such as dated systems or appeal, be proactive. Get a home warranty, or address any items that might be preventing a sale. It will cost less to address or fix the problem now then it will to hold the property for longer, risking further market decline or additional carrying costs.

The solution




9 Carrying Costs on Inventory Properties


The issue


The solution

In the time it takes from taking the property into inventory to the final settlement with a buyer, all of the expenses of maintaining the property can average 1.25 – 1.5 % of the property’s value per month. This cost is comprised of mortgage payments, association dues, snow leaf and debris removal, grass cutting, property security and insurance, utility, maintenance, and repair costs, as well as all the other costs associated with home ownership.

Many companies focus on the loss on sale piece of taking homes into inventory. However, the longer a home stays in inventory significantly impacts the total program costs. In many markets, the home selling process can take as long as a year or more. The total program costs of a home in inventory that long would double due to carrying costs alone.

The only way to control carrying costs is to sell the home. Work with a relocation provider that will aggressively explore the market for the property and overcome any hurdles that will keep the property from being the next house sold. Money wisely spent at the beginning of inventory can dramatically curtail the carrying costs of the property over time. Again, be firm. Putting off tough decisions because you are hoping for a better market to magically appear is too risky. If a poor decision is made taking a home into inventory, taking quick corrective action could save tens of thousands of dollars in the long run.




10 Markup Charges by Your Third Party Relocation Policy


In an increasingly competitive marketplace, third party relocation companies are looking for new sources of revenue to offset zero fee pricing, company or employee rebates, revenue sharing and sign on bonuses.

Nothing is free. For every dollar that is given back to a company, another dollar has to be made, which ultimately results in a higher program cost somewhere that doesn’t necessarily lead to client or transferee satisfaction. A great example of this is the real estate broker referral fee. Since the advent of relocation service providers, brokers have paid referral fees to these companies in exchange for the home buyers and sellers directed their way. Not only have these fees increased, but the scope of the referral concept has expanded to include other vendors such as temporary living providers, appraisers, home inspectors, lenders, van lines and more. The fees may come in the form of preferred network charges, short paid invoices or a percentage of anticipated volume. Relocation companies that charge too high of a fee will be refused by the best Realtors available, because great Realtors won’t accept those terms. Arrangements with “preferred networks” might exclude other more competitive or better overall options for your transferees.

The issue






Pay a fair price for a fair service and avoid hidden markups and inflated overall costs. Work with a vendor who has a clear pricing structure and no hidden arrangements. Any arrangements that are in place should be disclosed so that the employer can determine what impact, if any, it might have on the overall program. At the end of the day, you should have a clear understanding of how your provider is fully compensated for the services they are entrusted. Their motivation and efforts to derive revenue streams should never compromise the service objectives of the company or the needs of your transferees. When your service provider’s motivation and measure of success is in sync with yours, everybody wins.

The solution

Work with a vendor who has a clear pricing structure and no hidden arrangements.





CoNCLUSIoNDid you find yourself nodding along to any of the chapters in this book? If so, be sure to schedule a meeting with your relocation partner to discuss next steps moving forward. It’s hard to say exactly what 2013 is going to look like, especially from a regulatory and economic perspective, but we believe that technology, flexibility and open lines of communication are going to be three major themes for the New Year. Finally, no matter what happens in 2013, always make sure your policies are current to market trends and true to your corporate culture, as well as your recruitment and retention strategies.




top 10 ways your relocation program lost money in 2012

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