Compiled by Pete Doty, Denver Realtor
These terms are often used by relocation companies when communicating with transferring or relocating employees
Amended Value Transaction–After an appraised value has been determined and an offer to purchase made to an employee, and during the period in which purchaser’s written offer is outstanding, the employee, in order to determine market value more precisely, may seek a potential buyer who is willing to pay a price higher than the appraised value. As in an appraised value transaction, employee may choose to enter into a listing agreement with a real estate broker he/she selects, in which case employee must include in the listing agreement a provision to the effect that the broker will earn no commission if the employee sells home to purchaser (“exclusion clause”). If purchaser determines that the offer is bona fide, purchaser will then amend its appraised value offer to employee to reflect the value placed on the home in the arm’s length transaction (the “amended value”). This offer from purchaser at the higher price is unconditional and is not contingent on any event.
In selling to purchaser in an amended value transaction, employee executes and returns to purchaser the offer to purchase and related documents, modified to include the amended value amount in place of the appraised value. Upon execution of the offer to purchase, purchaser pays employee a portion or all of the employee’s equity in the home. When employee vacates the home and/or closes with the purchaser, final equity and adjustments are computed (based on the amended value) and paid. Pursuant to terms of the offer to purchase, purchaser is the sole beneficial owner of the home and bears all of the burdens of ownership including the responsibility for all expenses related to maintaining and disposing of the home. Employee bears no risk that the potential buyer will not buy the home or that the home may ultimately sell for less than the amount purchaser paid to employee.
The listing agreement between the broker and employee is terminated pursuant to the exclusion clause which is an integral part of the listing agreement. Since employee has sold the home to the purchaser, employee has no obligation to pay a commission to the real estate broker.
The structure of the amended value transaction does not permit employee to accept the offer from the potential buyer. He/she may not enter into a contract nor sign any document with the potential buyer. Accordingly, there is never a binding agreement between employee and the potential buyer, either at the time purchaser amends the offer or thereafter.
Purchaser enters into a listing agreement with the broker which reflects purchaser’s agreement to pay a real estate broker commission in connection with a sale of the home only if and at such time as a sale is in fact closed.
The offer by the potential buyer to purchase the home is sent to the purchaser. If the potential buyer is still available and if his/her offer is acceptable to purchaser, it is then signed by purchaser.
Employee exercises no control over purchaser’s sale to the potential buyer or anyone else. If the anticipated sale by purchaser to the potential buyer is not closed, this has no effect on purchaser’s obligation to pay employee the amended value for his/her home.
Appraised Value Transaction–Pursuant to an agreement between a corporation and a purchaser, purchaser is advised that an employee is to be relocated. Purchaser then contacts the employee and, if employee consents, typically orders two independent appraisals of employee’s home to obtain an estimate of its market value. The appraisals are prepared by independent professional appraisers. Either the purchaser selects an appraiser, or in some programs the employee selects some or all of the appraisers from a list prepared by the purchaser. In some cases, employee may select one or more appraisers not on the list, provided they meet certain qualifications. If the values in the appraisals are within a stated range (usually 5 percent of the higher), the average of the two is taken and that average becomes the appraised value. If the variance between the appraisals is greater than the permitted range, a third appraisal is obtained and the appraised value is determined, depending on the program, by averaging some combination of the appraisals. Typically, a review process is conducted to assure that the appraisals were competently prepared and are complete.
Once an appraised value is determined, purchaser offers to buy the home for this price. The offer is made in the form of an offer to purchase between purchaser and employee. If employee desires to sell to purchaser, he/she can accept the appraised value as the market value of the home.
Depending upon the corporation’s relocation program, employee will have a period of time (usually between 30 and 90 days) from the date of mailing to him/her of the offer to purchase to elect to accept purchaser’s offer at the appraised value. Employee exercises this election by executing the offer to purchase and returning it and other documents to purchaser. Upon receipt of the offer to purchase which employee has executed, purchaser signs it and pays employee a portion of all of employee’s equity in his/her home, depending upon the corporation’s relocation program. When employee vacates the home and closes with the purchaser, the balance, if any, of employee’s equity is paid. Pursuant to the terms of the offer to purchase, purchaser is the sole beneficial owner of the home and bears all of the burdens of ownership including the responsibility for all expenses related to maintaining and disposing of the home.
Assigned Sale Transaction–An assigned sale transaction differs from an amended value transaction in certain material respects, although the procedures may appear to be similar. In an assigned sale transaction, employee typically signs the contract of sale from the potential buyer or enters into an agreement with the potential buyer. In such event, employee will sign all of the documents purchaser requires, which are similar to those used in an appraised value transaction or amended value transaction, and will also execute an assignment of the agreement with the potential buyer to purchaser. Employee will also execute a transfer of the contract of sale with the potential buyer to purchaser.
In general, there are two variations for when employee has the right to receive equity form purchaser in an assigned sale. In the first variation, employee has the right to receive equity based on the price in the potential buyer’s contract of sale subject only to fulfillment of all of the contingencies contained in the contract of sake from that potential buyer. If the contingencies are not removed, the transaction between employee and purchaser reverts to a sale at the appraised value.
In the second variation, employee has the right to receive initial equity based on the appraised value; he/she has the right to receive additional equity when the sale to potential buyer is closed. In the assigned sale transaction, purchaser ordinarily does not enter into a new listing agreement with the real estate broker.
Carrying Costs–Recurring costs and extraordinary charges of holding a property in inventory. This could include insurance, utilities, mortgage interest, condominium dues, taxes, homeowner association dues, assessments, repairs and capital improvements. All costs of holding and operating a property during the inventory or marketing period should be charged to this category.
Closing Assistance Option–From time to time a situation may exist in which employee obtains a potential buyer for his/her home before being initiated into a corporation’s relocation program or before an appraised value has been determined for the home. In such an event, employee usually has signed an agreement to sell the home to a potential buyer, and the only assistance being offered by purchaser is to pay employee his/her equity in the home and close the sale to the potential buyer.
Employee may sign an offer to purchase the home to purchaser and assign the agreement with the potential buyer to purchaser to close. In some programs, employee is relieved of his/her obligations with respect to the home when the offer to purchase between the employee and purchaser is executed. If for some reason the closing with the potential buyer does not occur, the home is processed as an appraised value transaction with employee being paid on the basis of the price in the agreement with the potential buyer.
Days in Inventory–The time period from the date of execution of the offer to purchase with the employee through the resale closing date. Accurate comparison of one corporation’s days in inventory to another’s requires recognition and appropriate adjustment if different dates are used.
Direct Costs–Those costs charged directly against a specific property, which are then billed back to a corporation by either a third party company or in-house program. Usually, acquisition and carrying costs as well as disposition and selling costs are included.
Direct Reimbursement Program–A type of homesale program in which the corporation does not guarantee an appraised value nor does it purchase the property from the employee but does reimburse some or all of the direct selling costs.
Directed Offers–An offer to purchase where the corporation has directed either the third party company or its in-house program to make an offer which is not solely derived from the relocation appraisal process. This offer is usually for an amount which would exceed the most probable selling price of the property.
Duplicate Housing Expenses–Costs reimbursed to an employee who winds up owning two homes due to delay in selling or closing or some similar sequence of events on either the new home or the old home. Typically, these costs include mortgage interest, property taxes, maintenance and insurance.
Employee Incentives–Any amount of money and/or valuable consideration or services granted to an employee to sell his/her home prior to its being acquired by the purchaser.
Employee Loss-on-Sale Protection–An aspect of some homesale programs which calculates the difference between the appraised value offer and either the employee’s purchase price or the employee’s purchase price plus all or some of the subsequent capital improvements. This difference, or some portion thereof, is paid to the employee.
Exclusion Clause–A provision placed in a listing agreement in which the broker acknowledges that he/she will earn no commission if the employee sells the home to the purchaser. It should be inserted into every listing agreement involving a relocating employee.
Homesale Program–The part of a corporation’s relocation policy designed to facilitate a relatively fast, convenient means by which an employee may sell his/her home with a minimum of time and effort. Usually accomplished through a third party or a corporate in-house program by appraised value, amended value or assigned sale transactions. Unusual selling situations may be termed “special transactions.”
In-House Program–A relocation service supplier created within a corporation to provide homesale services to employees being relocated. In some instances, the in-house program staff may administer the corporation’s relocation policy as well as the homesale program. Synonymous with “purchaser.”
Non-recurring Carrying Costs–Charges associated with an inventory property which are generally one time in nature. Examples include repairs, capital improvements, mortgage assumption fees and assessments.
Offer Period–That period of time from an issuance of an offer to purchase by the purchaser until expiration of the offer. The length of the offer period varies widely throughout the relocation industry.
Offer to Purchase–A contract of sale extended to an employee by the purchaser to buy employee’s property. The amount is computed according to the corporation’s relocation policies or program relying upon the use of the relocation appraisal process.
Program Service Fees–Fees charged to the corporation by the third party company or the in-house program for having provided services such as appraised value, amended value and assigned sales transactions. Program service fee structures vary with individually negotiated contracts. Examples may include appraisal service fees, management fees, performance and target fees and other incentives, cancellation fees, fixed buy-out fees, initiation fees, special transaction fees and flat dollar fees.
Recurring Carrying Costs–Frequently recurring costs of holding a property in inventory. Examples include insurance, utilities, mortgage interest, condominium dues, taxes and homeowner association dues. All recurring costs to holding and operating a property during the inventory or marketing period should be charged to this category.
Relocation Appraisal–The process by which the most probable sales price of a residential housing unit, using the market data approach to value, is established. Also, the form by which the most probable sales price is reported. The purpose of this appraisal is to establish the most probable sales price for a relocated employee’s primary residence, assuming arm’s length transaction.
Resale–The selling and closing of an inventory property.
Tax Assistance–A payment by a corporation to an employee in recognition of the fact that many of the payments associated with relocation are considered income to the employee and thus are taxable. This payment, which is also taxable, may pay for all or part of the additional taxes incurred. Also known as “gross-up.”
Transferee–Any person working for a corporation who is relocating and is eligible to participate in the provisions of the corporation’s relocation policy.