The sluggish economy and real estate doldrums are making relocation companies more strategic.
By Debbie Bolla
Since the real estate bubble burst two years ago, nothing—and that means nothing—is the same when it comes to corporate relocation. Organizations looking to move valued employees have been struggling with unprecedented challenges: homes under water, loss on sale, increased time on the market, and an overabundance of real estate inventory. But with adversity comes innovation. Leading relocation outsourcing providers have developed strategies to curb the effects of the declining real estate market to ensure that organizations’ talent will land where they need to be.
“Clients want to be sure that dollars spent on relocations and assignments are resulting in maximum value, and there is a heightened awareness of the elements of spend and a corresponding awareness that overall efficiencies and cost control can be derived by managing and driving efficiencies within that mix,” says Matt Spinolo, Cartus executive vice president of global client services. “We are no longer simply carrying out clients’ programs and reporting on them. We are helping clients control risks by effectively managing all of those elements by focusing on preparation and planning and effectively managing the output.”
Controlling spend is certainly on the minds of all business executives, and corporate relocation can add up to quite an investment. According to the Worldwide ERC Transfer Volume and Cost Survey, the price tag for relocating an employee homeowner increased 18 percent from 2007 to 2009, bringing the average cost to $90,017. “That kind of investment certainly warrants more deliberate decisions about relocation and workforce deployment,” notes Ellie Sullivan, director of consulting services for Weichert Relocation Resources.
But often, companies need to evaluate the cost of losing valuable talent versus the cost of placing them in the right spot.
“They say you can’t save your way out of a recession, and I think the savings of not relocating someone is sometimes more expensive to a company than having the right talent in the right location,” says Joleen Lauffer, director of client services/operations for AIReS.
This is where relocation providers have really stepped up their game. In this market, relocation has also become a burden in the eyes of homeowners. Taking on a more strategic role, providers have developed solutions that are cost-effective and attractive for transferees while providing companies with highly sought-after
Experts hit on five key topics that are making relocation successful during this lean market.
#1 Pre-decision Policies
A thorough cost-benefit analysis on both sides of the fence has taken a crucial role in relocations of late. The transfer survey reports that currently nearly 40 percent of responding organizations provide candidates with a pre-decision assessment, while in 2007 only 9 percent did.
“I think pre-decision assessments will be among the top legacies emerged from the Great Recession for our industry,” says Russ Haynie, director, global consulting group for Prudential Real Estate and Relocation Services. “For homeowners, it’s getting a solid equity assessment before they make the decision to accept a move. That’s in everyone’s best interests. That prevents getting too far into the process before finding insurmountable obstacles. It’s also more holistic, by discovering early what are anxiety points, how can they be overcome, and what are the limits of what the organization is willing to extend.” Haynie says these valuable assessments can help companies realize the roadblocks in the way of relocating a top candidate and how to surpass them.
Cartus’s Spinolo agrees. “We’ve definitely seen pre-assignment approaches taking on more focus with an emphasis on upfront financial feasibility exploration, typically in the form of early home valuation. Of companies Cartus recently surveyed on this issue, 46 percent use this approach, and 25 percent of those had recently added it. “Overall, the approach allows companies to assess and plan for the potential financial exposure they may face with this candidate and establish a more accurate budget, as well as allowing employees to determine the financial impact of a relocation.”
Knowledge is power and helps to control previously uncontrollable risk. “In the past, you didn’t do as much vetting upfront of a potential transferee as you are doing today,” notes Bill Graebel, CEO, Graebel Relocation Services. “So clients are coming to us, asking for the best practices that we are coming across within the high rate transfer acceptance group.” Graebel says this is leading to what he calls a menu-driven approach. Clients are seeking advice from providers about what high-value products they can include in their policy. He says they want to use the total amount of spend per relocation on what transferees truly value, hence a greater emphasis on pre-assessment.
#2 Strategic Policy Amendments
While the market has driven traditional policy changes (see trend 3), providers have used the lean economy to develop strategic and innovative solutions to help curb relocation reluctance. “This declining market has resulted in the need for relocation companies to get creative in working with their customers on how to sell homes, how to create the right expectations for transferees, and how to make it work,” says AIReS’s Lauffer.
Rotational programs. Weichert’s Sullivan reports that some organizations are considering a series of short-term assignments for top talent to avoid home sales and purchases all together. By providing a living-away-from-home allowance, transferees can keep their houses in the old locations until the rotations are over. “By rotating talent, you can give them the experience they need while doing it more cost effectively.”
Haynie agrees. “We’ve seen a lot of increased interest in temporary assignments. They do work well in this environment. An employee that would be otherwise reluctant to accept a permanent move may be more amenable to taking a project assignment that is shorter in nature.” Organizations can also take advantage of the tax benefits that one-year assignments offer. And, as Haynie says, “It gets them talent where they need it more flexibly.”
Inventory on Intranet. This new program that AIReS recommends allows the entire employee population to view the homes that are available through the relocation program. The group of listings can be marketed on a company intranet and as incentive, a flat-dollar reward or payment of a percentage of closing costs for purchasing a home through the relocation program. AIReS has found this keeps the inventory moving and helps accelerate the sale of the homes.
#3 Traditional Policy Changes
The current market has certainly encouraged HR executives to review their policies and make amendments in order to stretch their dollars. Experts agree that the number one request is an increase in loss on sale assistance.
“We see among companies that already have a traditional relocation program an increase in providing loss on sale to the employee,” says Sullivan. According to Weichert’s research study, Mobility and the Current Real Estate Market, 74 percent of companies provide some type of loss on sale assistance. The other important finding, notes Sullivan: The amount they will provide on loss on sale has gone up considerably
Other popular policy changes include increased temporary living coverage, increased home sale incentives, added required marketing time, and increased time or amount of duplicate living costs.
#4 Amping Up Marketing
A key to any swift home sale transaction is the right marketing and the right price. Some providers are reporting what a crucial role marketing has during a “buyer’s” market. A recent Cartus survey revealed 76 percent of companies require or are considering instituting mandatory marketing prior to the appraisal process. This is up 10 percent from 2009.
“We’ve stream-lined communication and interaction between employees and real estate experts during the home marketing phase, which is paying dividends in terms of driving effective home sale outcomes,” notes Spinolo. “We’ve also intensified our normal practice of continual information sharing between internal real estate consultants, brokers, and appraisers, to make sure that each expert involved in the valuation and marketing process has the most up to date information and is privy to best practice approaches that can help market and sell.”
#5 Rent Recommendations
Due to some recent developments in the real estate market, there is great hesitancy of transferees to purchase in the new location. Home rental is becoming a more viable option. According to the Worldwide ERC Transfer Volume and Cost Survey, 66 percent of organizations reported an increase in previous homeowners opting for rent at the new location over buying a new home. Some providers, including Prudential and Cartus, have seen organizations willing to pay rental incentives to support the decision not to buy in the new location.
And if transferees are adamant about buying, relocation providers are taking the necessary precautions. “We are certainly looking at valuing potential home purchases in the new location for transferees to decide if they become a homeowner they will have a reasonable opportunity to sell if they need to move again in three or four years,” says Eugene S. Isaacs, senior vice president of marketing and affiliate development for Lexicon Relocation. He explains that the use of pre-purchase appraisals and evaluation terms help ascertain the correct value and potential risk.
And risk control is what it comes down to in this lean real estate market. Most of the experts said that they believe the worst has hit the industry, but a lot of the solutions will not be temporary. Rather, they are the new normal.