How much does relocation cost? When designing a U.S. domestic corporate relocation package, the most significant factor in relocation costs is whether the employee is a homeowner.
Homeowners face the challenge of selling their current home and purchasing a new one to make a corporate relocation. This process introduces additional expenses like real estate agent fees, closing costs, taxes, and potential losses if the home doesn’t sell for the desired price.
In contrast, the renter process typically requires fewer services. Therefore, the cost of relocating renters is less expensive and less time-consuming.
Given these differences, companies must tailor relocation packages for homeowners by offering a separate tier of services that address the financial and logistical complexities of a home sale.
Employers must also decide whether to offer a Guaranteed Buyout Option (GBO) or a Buyer Value Option (BVO) home sale program. These options expedite homeowner relocation but also add relocation costs.
This article breaks down the cost of relocating homeowner employees for a domestic move in the U.S. By understanding estimated corporate relocation costs, HR departments can make informed decisions.
Why Home Ownership Increases the Cost of Relocating
The cost of relocating a homeowner is greater than the cost of relocating a renter. Homeownership requires additional relocation services, which increases corporate relocation costs.
Corporate relocation costs for homeowners may include:
- Realtor, closing costs, and taxes for both selling the old home and purchasing a new one
- Selling a home can take time, which increases the need for temporary housing
- Homeowners typically own larger homes, which means more household goods to move
- The expense of a home sale program
Corporate Relocation Costs: Home Sale Programs
Some employers offer home sale programs as part of homeowners’ corporate relocation packages. Employers typically offer one of two options: the Guaranteed Buyout Option (GBO) or the Buyer Value Option (BVO). These programs simplify the home-selling process for employees.
Under the GBO, the relocation company buys the employee’s home at an agreed-upon appraisal price. A GBO provides the employee with financial certainty and eliminates the risk of the home not selling or selling below expectations.
In a BVO, the employee uses the provided Realtor services to find an independent buyer. The relocation company then makes an offer to purchase the home based on the buyer’s price. If the employee accepts, the relocation company purchases the home. The relocation company then sells the home to the buyer, passing on any associated costs to the employer as business expenses to minimize tax impact.
Home sale programs eliminate employee financial and tax risk, which makes employees more likely to accept a relocation offer.
Should Employers Pay For Home Sale Program Costs For Employee Homeowners?
Including home sale programs in corporate relocation packages benefits both employees and employers.
Employees appreciate a guaranteed return on their home investment. A home sale program also speeds up the relocation process by eliminating home sale delays.
A home sale program allows employers to write off home sale expenses and avoid tax gross-up expenses. Employees who are satisfied with the relocation benefits and service are also more likely to accept a relocation that furthers the company’s financial goals.
Certain situations, such as executive moves, particularly benefit from home sale programs. These high-profile moves involve significant financial investments. A predictable home sale helps executives focus on their new role rather than the complexities of selling their home.
A home sale program can also be a recruitment tool. For potential hires, the challenges of selling and buying a home can be a major barrier to relocation. Home sale assistance can make a job offer more attractive. By providing this benefit to homeowners, employers can ease the transition for employees, helping to attract top talent and improve retention.
How Much Does Relocation Cost For U.S. Employee Homeowners?
The cost of relocating a homeowner can vary greatly depending on the home’s value, the distance to the move, and the relocation services offered. These U.S. domestic relocation cost estimates are useful starting point for understanding corporate relocation budgets.
For employer homeowners without a Buyer Value Option (BVO), the estimated cost of relocation for a typical U.S. domestic move is around $45,500. This estimate assumes standard services like household goods moves, temporary housing, and travel allowances, but it does not include the added expense of a home sale program.
If the homeowner is offered a Buyer Value Option (BVO) home sale program, the estimated U.S. relocation costs increase to around $93,000. The cost of relocating varies by the home’s value and the location of the move, but the BVO adds considerable value by helping employees sell their homes quickly and efficiently with a set price.
To better understand how much does relocation cost for a U.S. homeowner employee, we’ll break down the $93,000 domestic corporate relocation costs for U.S. homeowners and detail the expenses associated with each corporate relocation service.
Cost of Home Sale Programs For Corporate Relocation
Corporate Relocation Costs With Home Sale Program
A home sale program in a corporate relocation package typically covers realtor assistance, closing expenses, and taxes.
Realtor assistance includes fees for hiring a real estate agent to list, market, and negotiate the sale of the home, often paid by the employer.
Closing costs, which include title insurance, inspections, and transfer taxes, are another significant expense for homeowners. How much does relocation cost with a home sale program greatly varies depending on the specifics of the home sale. For a home valued at $500,000, closing costs are typically around $5,000-$10,000. These include inspection fees and title transfer expenses, which the employer generally covers.
Closing costs for a $1,000,000 home are usually higher, typically around $10,000-20,000, depending on the specifics of the sale. As with the lower-value home, the employer covers these relocation costs, relieving the employee of any financial burden during the relocation process.
Realtor commission is typically 7-8% of the home price. For example, the realtor commission would be approximately $35,000 for a $500,000 home or $70,000 for a $1,000,000 home.
However, the home sale program allows the employer to write off the home sale and avoid grossing up employee compensation to cover incurred taxes.
Corporate Relocation Costs Without Home Sale Program
Choosing not to offer a home sale program reduces the average cost to relocate an employee but introduces several risks.
Even without a formal program, the employer may still need to pay for Realtor, closing costs, and taxes without the ease and speed of a home sale option. If they reimburse these expenses, they will also incur the additional cost of the tax gross-up for that reimbursement and miss the write-off opportunity of a BVO home sale program.
When considering how much does relocation cost without a home sale program, it’s important to note that employees may struggle to sell their homes, leading to delays, increased stress, home value loss, and potentially a failed move.
Cost of Relocation For U.S. Employee Homeowners By U.S. Domestic Service
In addition to the Buyer Value Option (BVO) home sale program, which can cost around $40,000 (dependent on the home value) and covers realtor assistance, closing costs, and other related expenses, the cost of relocating a U.S. employee homeowner involves several additional expenses.
Average Cost to Relocate an Employee’s Household Goods (U.S. Domestic)
Moving household goods, including transportation, packing, unpacking, and insurance for any damages, is a significant expense in corporate relocation. Relocation costs vary based on household size and distance, with typical moves ranging from $20,000 to $25,000. A cap may apply depending on the relocation policy.
While storage is not included in the corporate household goods move and requires approval, employers typically cover auto shipment for up to two vehicles. The average relocation costs for vehicles are around $3,000 through NRI’s vetted shippers for safe transport.
Cost of U.S. Temporary Housing
Temporary housing may also be necessary if the employee’s new home isn’t ready for immediate move-in.
U.S. corporate housing costs typically range from $5,000 to $10,000. For relocations requiring up to 30 days of temporary housing, the cost is around $5,000, while stays of up to 60 days typically cost $10,000.
If the temporary stay exceeds 30 days, NRI coordinates with vetted corporate apartments to provide housing solutions.
Cost of Employee Travel to New U.S. Location
The relocation package covers travel expenses for the employee and their family, including airfare, ground transportation, meals, and incidentals.
The travel allowance for employees under the BVO Home Sale Program is up to $10,000, while those not under the BVO program typically receive around $7,500. NRI Financial Services can process these expenses.
Misc. Allowance (Net)
Miscellaneous allowances in relocation packages cover incidental expenses like temporary storage, home search fees, or other personal employee relocation costs.
NRI Financial Services or the company’s payroll processes these allowances, depending on the company’s preference.
Cost of Relocation Package Tax Gross-Up
Relocation expenses are taxable, creating a financial burden for employees. To offset this, many employers provide a tax gross-up, covering the additional tax liabilities associated with relocation benefits. A tax gross-up can be processed through NRI Financial Services to ensure proper tax handling and minimize the employee’s tax impact.
Cost of Corporate Relocation Specialist Service Fees
Relocation specialist fees cover the services provided by relocation companies or specialists who manage the move’s logistics and coordination. These fees typically include costs for relocation management services and, if applicable, additional financial services from NRI Financial Services. These components are included in the overall relocation package and are agreed upon in advance between the employer and the relocation service provider.
Cost of Relocation For Employee Renters
Relocation costs for renters are significantly different and typically lower than the cost of relocating homeowners. Employers may offer a separate tier of relocation packages for renters, focusing more on assistance with moving, finding housing, and lease cancellation.
How Much Does Relocation Cost For Your Employees?
Determining how much does relocation cost for your employees depends on various factors, including their homeownership status, the size of the move, and the services included in the relocation package.
At NRI Relocation, we specialize in helping companies estimate the cost of relocation for employees, ensuring a positive experience for both the employee and the company.
Fill out the form below to recieve a quote tailored to your employee’s unique situation and needs. Providing NRI with the specifics of your employee’s move will allow us to offer a more accurate corporate relocation cost estimate.