Real estate sticker shock hits corporate transferees

May 5, 2005

Employers offer new relocation incentives

Inman News

California and other state's high housing costs are causing angst among employees looking to relocate to those markets. Employers have responded by offering new relocation incentives.

"Employees who job hunt in California get sticker shock really fast," said Arden Hjelm, a RELO relocation specialist and vice president of Young Realtors in Westlake Village, just outside Los Angeles. "The average sale price of a home here is $680,000," she noted. "$400,000 will buy you an 800-square-foot condo." 

The same is true in Westchester, N.Y., a popular destination for executives who want to make the career-enhancing move to a New York City headquarters job.

"There are several areas in the United States, mostly along the West and East Coasts in and around San Francisco, Los Angeles, Boston, New York and Washington, D.C., that have higher housing costs than the majority of the rest of the U.S.," said Ginny Logan, senior vice president, RELO Direct. "Employees, understandably, can be hesitant to accept a move and face these higher costs."

An executive in Houston might have to give up a 3,800-square-foot, custom-built home with a landscaped pool and waterfalls, valued at less than $300,000 for a $600,000 1,200-square-foot home in California, Logan noted.

"An executive in Dallas can live in a 4,000- to 5,000-square-foot home for under $500,000 but could be looking at a sticker price of $2 (million) to $3 million for a 2,000-square-foot home in San Francisco," she said.

A recent survey showed one California city's costs to be more than 150 percent above a standard U.S. city.

This makes for a huge affordability gap that employers and home brokers are working to breech.

"Today there are several program options we are seeing corporations utilize to help employees transfer into higher cost-of-living areas," noted Logan. These are:

  • Creative mortgage products: A wide variety of mortgage options are now available specifically for dealing with high-cost areas. For many relocation mortgage lenders, interest-only loans represent more than 50 percent of their origination business. The interest-only product can work well for a transferee, with lower payments, total deductibility and targeting the relatively short term (less than 5 years) nature of most transfers.
  • High-cost housing bonus or a Cost of Living Allowance (COLA): A predetermined bonus based on the employee's salary is paid annually once per year for a specified number of years or through monthly cost-of-living payments, while the employee is living in the high-cost area. COLAs are on the rise again and are being re-introduced into many relocation programs. Recent survey results indicate that approximately 48 percent of organizations offer this program to high-cost area transferees.  
  • Mortgage subsidies: These programs were developed as alternatives to a bonus or lump-sum allowance. They are also used to attract and retain key talent. Mortgage subsidies help transferees qualify for a higher loan amount by reducing their monthly housing payment. This allows them to qualify at a lower or "subsidized" interest rate. These subsidies can either be permanent, i.e., the corporation can buy the interest rate down over the life of the loan, or temporary. The temporary subsidy reduces the interest rate over a predetermined number of years.
  • Salary increases: Some corporations are providing a one-time (or higher-than-normal) salary increase that is separate from performance reviews. This increase can be derived from many different methods and its intent is to help offset the sticker shock of moving into a higher-cost area. Recent surveys indicated that approximately 38 percent of corporations offer this type of assistance. 
  • Homeowner Policy Exceptions: Homeowner to renter to homeowner without loss of home sale policy benefits. This unique policy feature is designed to allow an existing homeowner being transferred into a high-cost area to retain ownership of their existing home, rent at the new location and then once transferred again, retain all the original homeowner policy benefits offered with the first move. This policy component is seeing an increase in usage today.  

Real estate brokers, who are often the first to break the sticker-shock news to transferees, find themselves doing a lot of educating and explaining. "I educate them about the quality of life here in Westlake Village, Calif., where there are excellent schools, public golf courses, little rain and nearby beaches," said Hjelm. "I tell them even though the kids may have to share a room for awhile, they will be outside playing almost 365 days a year. I relocated here from Detroit in 1976 when my children were six, eight and 10, and all of them have stayed."

RELO Direct is a full-service relocation management company, providing relocation services for corporations, affinity groups and real estate brokers. RELO Direct is a subsidiary of RELO, a network of independent residential real estate firms with 660 members representing 4,700 offices and 110,000 associates across the U.S. and in 20 countries.

Copyright 2005 Inman News

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