1. C O A L I T I O N Corner Amended Value Sales and BVOs © 2005, Employee Relocation Council/Worldwide ERC ® Coalition Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries

2. C O A L I T I O N Corner Program objectives This program supplements a monthly editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Examine two types of commonly used relocation homesale assistance programs: Amended Value (AV) sales and Buyer Value Options (BVOs) –Explore the differences between the two, and how they also differ from typical consumer sales

3. C O A L I T I O N Corner By way of background… Worldwide ERC ® research notes that the average cost to relocate a current, homeowning employee in 2003 was $70,771.* Homesales make up a significant portion of that expense If employer were to reimburse those expenses directly, the entire amount = taxable income to employee Homesale assistance programs allow employers (or relocation management companies [RMCs], acting on their behalf) to purchase home in old location and sell to outside buyer Most of the costs incurred are not taxable to the employee, assuming a properly structured program *2004 Worldwide ERC ® Transfer Volume and Cost Survey

4. C O A L I T I O N Corner Homesale programs There are several types of homesale programs that offer employee a “guaranteed” buy-out amount for home in old location Amount of guarantee is typically based on two or more relocation appraisals Offers generally open for 60 to 120 days In traditional guaranteed purchase offer programs, employees can accept offer at any time during above period Modern policies usually encourage or require period of “open market” marketing time and effort by employee before guarantee can be accepted (to reduce carrying costs by locating a buyer quickly)

5. C O A L I T I O N Corner Two types of programs Let’s take a closer look at two commonly used types of relocation homesale assistance programs: Amended Value (AV) Sales and Buyer Value Options (BVOs)… …and how they differ from a typical consumer transaction

6. C O A L I T I O N Corner Amended Value Sale If, during the “open market” marketing period mentioned previously, a buyer is located who is willing to pay a higher price than the guaranteed amount, the transaction may be completed as an amended value sale Employee does not accept outside offer, but forwards it to the employer or RMC Guaranteed offer amount is then “amended” to reflect outside offer price, and home is sold to employer/RMC Employer/RMC then attempts to enter into contract with and sell to outside buyer

7. C O A L I T I O N Corner Amended Value Sale Provided the “11 key elements” of an Amended Value sale are followed (see a previous “Coalition Corner” edition on this topic at http://erccoalition.org/library/tm_re_law0203.shtml), this type of sale allows the employee the certainty and tax advantages of a guaranteed offer, as well as the flexibility to market the home to secure the best price http://erccoalition.org/library/tm_re_law0203.shtml

8. C O A L I T I O N Corner Buyer Value Option In a BVO program, no relocation appraisals are conducted, and employee DOES NOT receive a guaranteed purchase offer from employer/RMC Instead, employer/RMC will make an offer based on one made by a bona fide buyer in the open market Once buyer is found, procedures in BVO are same as in AV sales (i.e., the first transaction concludes between employee and employer/RMC, and then the property is sold to outside buyer) A BVO typically costs less than an AV sale, but also entails more risk that the Internal Revenue Service may deny tax benefits

9. C O A L I T I O N Corner Important Distinctions of the AV and BVO Programs Some important items differentiate both AV and BVO transactions from typical consumer sales: For significant tax reasons, the property must be purchased and sold twice, typically using two separate deeds: once to employer/RMC, and then to outside buyer Due to unique nature of transaction, employee is often required to select a real estate professional from an approved list when listing the home for this type of sale

10. C O A L I T I O N Corner Important Distinctions of the AV and BVO Programs (Continued) Some important items differentiate both AV and BVO transactions from typical consumer sales: The listing agreement entered into by employee to market home must contain an exclusion clause, providing that no commission will be paid if it is terminated due to sale of property to the employer or RMC Commissions are paid by the employer/RMC on second sale, to the ultimate purchaser, under separate listing agreement Executed contract between employee and employer/RMC must close, even if subsequent sale to buyer fails – employee cannot be impacted by outcome of second transaction (unless there is fraud or flagrant misrepresentation for which employee is culpable)

11. C O A L I T I O N Corner In conclusion… Both employee and employer can benefit from these arrangements by reduced total sale costs for the home For more information, see http://erccoalition.org/library/tm_re_law0203.shtml http://erccoalition.org/library/tm_re_law0203.shtml The Worldwide ERC ® Coalition thanks C. William Heald, CRP, Relocation Knowledge, LLC, and Peter K. Scott, Worldwide ERC ® Tax Counsel, Peter Scott Associates, for this edition