The Benefits of a Relocation Sunset Clause

Relocation Sunset Clause BVO Homesale

What are the benefits of a BVO (Buyer Value Option) Sunset Clause? The benefits include reducing the costs of additional temporary housing, duplicate housing and storage. In addition to the cost savings there is a significant savings of time because the relocating family’s home isn’t for sale indefinitely and it allows the family to be living together in the new location more quickly. Finally, the other benefit is Tax Compliance. Including a Sunset Clause as part of a BVO insures that the homesale program is in full compliance with IRS standards as it relates to homesale transactions.

While BVO programs are subject to a degree of interpretation, there are parameters which should be followed to ensure the program is tax protected while facilitating employee mobility. Paragon recognizes the risks associated with a BVO program and understands the challenges in overcoming the potential expenses related to homesale transactions. As markets soften, correct and/or decline, client corporations should consider a “sunset clause” for as a Guaranteed Buyout Offer (GBO) at some time during the BVO process.

Why should your relocation policy include a BVO Sunset Clause?

Some of the benefits for the Sunset Clause include:

  • Reduces Costs: Companies that have included a Sunset Clause have significantly reduced the costs for temporary living, duplicate housing, and storage costs.
  • Saves Time: It reduces the amount of time it takes to complete a relocation and it therefore helps families live in one location more quickly.
  • Provides Full Tax Compliance: Although not a mandatory procedure according to IRS Revenue Ruling 2005-76; Worldwide ERC’s Tax Counsel recommends client organizations provide a GBO at the end of the BVO process in order to operate in the most favorable way to protect the tax exempt status of the third party relocation homesale program.

How does a BVO Sunset Clause work?

The Sunset Clause could take effect after the home has been on the market for six months. However, this is client prerogative. Most clients choose mandatory marketing of anywhere from 120-180 days. After this mandatory marketing period, appraisals would be ordered so that a guaranteed offer could be established no more than 30 days later. Upon receiving the guaranteed offer, the transferee would have 30 additional days to aggressively market their property in order to find a buyer, before having to fallback on the guaranteed offer, thus bringing conclusion to the homesale for the employee.

Another consideration for this type of program is to base the guaranteed offer on a percentage of the appraised value. The same process for determining the value is followed except at the time of calculation, an employee is offered, for example, 95% of the appraisal value, resulting in the GBO amount. This approach may allow for an employee to have more incentive earlier in the process and facilitate a change in the strategies for selling a home prior to having to accept a GBO.

Companies that are instituting the Sunset Clause indicated it was primarily to avoid the dual risks of an IRS audit and letting homes languish in slow markets.

For more information about how adding a Sunset Clause can bring added benefits to your relocation program, please contact Paragon Relocation’s Consulting group to hear about their Relocation Program Development services.

More information about the Buyer Value Option and Sunset Clause:

Download the BVO Sunset Clause Client Advisory and Whitepaper:

Relocation BVO Sunset Clause Client Advisory

View the Buyer Value Option with Sunset Clause Client Advisory.

Relocation BVO Sunset Clause Whitepaper The Benefits of a Relocation Sunset Clause

View the Buyer Value Option with Sunset Clause Whitepaper.

Helpful information from Paragon and from around the web:

Best Practices for Global Mobility Programmes

Paragon RelocationPulse Points 2010: Trends and Best Practices for Global Mobility Programmes

As relocation volume stabilises and shows signs of a slow, but steady recovery, early indicators suggest 2010 will be a year of programme recalibration. The U.S. housing market continues to struggle. Many practices highlighted in 2009’s Trends and Best Practices report still apply. Strict Home Marketing parameters, use of buyer incentives, and formal loss on sale and negative equity provisions remain. While these benefits will underscore most U.S. domestic programmes, Paragon is choosing to focus on some new themes this year as the impact of “The New Normal” is poised to take center stage.

Pulse Point 1: Due Diligence
As companies and transferees become risk adverse in the “New Normal” environment, Paragon predicts a bias towards more focused due diligence as the initial step in domestic transfers and international assignments.

To continue reading this White Paper, please click here.

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