Home Sale Expenses – Harvesting the Low Hanging Fruit
Focussing on the “low hanging fruit” of your relocation policy could improve the cost-effectiveness of your program while minimally affecting the employee experience. Generally, these quick fixes can be introduced without much fanfare or disruption.
Home Sale is a good place to start. This benefit represents between 25% and 30% of the total cost of a domestic relocation, and the two largest expenses are Real Estate Commissions and Mortgage Discharge Penalties.
Introducing a few minor changes to these benefits could result in a tighter policy that is less vulnerable to misuse or unreasonable costs.
Real Estate Commission
Corporate relocations can be attractive files for real estate professionals given the potential for return business, which may be translated into a savings to the program. Reducing the commission rate for these files by 1% (from 6% to 5% of sale price, for instance) can reduce the overall relocation costs by up to 3%.
This savings can come directly from a reduction in the commission rate paid to the agents, but if you feel that they should be compensated for the higher complexity and urgency often associated with relocations, you may consider asking that the referral fees often levied by relocation management companies (RMC) to join their network of suppliers be reduced or redirected to the corporation.
Most RMCs collect referral fees, approximately 1% of the sale price, from both origin and destination real estate agents. Corporate clients should ensure that they fully understand the RMC’s fee structure and how these referral fees are reflected in the program’s overall cost. If referral fees are being collected, can they be used to reduce file costs or be rebated back to the corporation?
Mortgage Discharge Penalty
Relocation programs that reimburse the mortgage discharge penalty, can be vulnerable inappropriate use. A loosely worded provision will allow an employee to terminate a high interest mortgage in order to negotiate a better one for their new home, which should not be the intent of the benefit.
This behaviour can be managed by adding one or a combination of the following limitations:
– Cover only if the mortgage is not portable
– Cap the reimbursement to an amount equivalent to 2 or 3 months of penalty
– Impose a dollar cap on the reimbursement of between $5,000 and $10,000
– Require blending of the new and old mortgages, if the option is available
– Require that the new mortgages be portable
There may also be merit to offering the services of a consultant to help the employee navigate the mortgage options available.
Most relocation policies are designed within the context of a specific period in time. As the world outside evolves, creating new situations to consider, there may be a need for adjustments without necessarily a program overhaul. Corporations may find that the quick fixes, such as the ones described herein, help their program remain cost effective and stay within its intended scope.
 More on real estate professionals in a previous blog in our So If Series – Part 4: How are we treating real estate professionals?
 More on referral fees in a previous blog entitled: Reset to Fee for Service