Dealing With Loss on Sale and Negative Equity
Peter F. Hiro, Vice President of Business Development, CRP
We’ve experienced financial and emotional issues in dealing with the economy over the past couple of years. Positive thoughts in the early 2000’s of ever increasing net worth in savings accounts and housing made it easy to forget that “what goes up also does, indeed go down”. Companies are relocating more employees facing loss on sale (LOS’s) and negative equities.
When considering a loss on sale policy, companies should consider:
- Sharing the loss with the employee vs. absorbing the entire amount
- Capping the dollar amount of the loss
- Including only the purchase price VS the purchase price plus improvements
- Removing the tax gross up on loss reimbursed
- Drawing a distinct line between loss on sale and negative equity
Let’s look at how employees and employers should act:
Employees have learned that they are responsible for their actions. Companies are less likely to “fix” a buying mistake an employee makes. Transferees should “buy smart”. How? By:
- Spending the time necessary to know the market they are moving to
- Use experienced relocation Realtors®
- Proving it’s a “good buy”- have the Realtor® complete a broker’s market analysis on the property being considered
- Purchasing a property with features that appeal to the mass market for easier resale
Employers want transferees to “buy right”. How? By:
- Giving the employee the time and tools to buy smart (area tours, temporary housing, and home finding trips)
- Requiring the use of professional relocation Realtors®
- Requiring the employee know their equity position on their current property before purchasing a new one
To summarize, the employer and employee may minimize LOS’s and negative equity by taking the necessary steps to “buy right” up front.
Capital Relocation Services helps our clients develop policy that supports their strategic intent using our Low Stress Relocation Process™.