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Directed Home Buyout Offers Explained

According to a recent corporate relocation survey by Atlas Van lines, housing/mortgage concerns continue to be the top reason for relocation declines.  To try and mitigate these concerns some employers may consider making an offer to purchase an employee’s home at a specific price or deviating from standard  appraisal parameters. On the surface this may seem to be a way to provide financial support without incurring taxable income to the transferee, however, this is not the case.

Anytime an employer pays more than fair market value for the employee’s home, the excess is a called a“directed offer” and  taxable to the employee as wage income, not as home sale proceeds.  A directed offer can take many forms but typically involves asking appraisers to deviate from standard appraisal parameters.

Some examples of deviations from standard appraisal guidelines are:

  • Ignoring forecasting/market adjustments (elimination of the 90-120 day sale guideline)
  • Ordering a new set of appraisals after the property has been on the market for a while. When the second set has a lower value than the first set, using the first ones to determine the buyout price
  • In a relocation policy that states the average of two appraisals are to be  used to determine the buyout value, the employer elects to offer the employee the higher of the two appraisals rather than working within the policy
  • Ignoring the appraised price altogether and using some other figure such as what the employee paid for the property or “what they have in it”

Convincing a reluctant employee to accept a relocation can be challenging. If an employer chooses to provide additional financial assistance to address negative equity or loss on sale it is usually best to provide assistance either by offering a loss on sale benefit or a relocation allowance, as opposed to changing the appraisal process. This will avoid potential issues with the IRS, which can result in fines or penalties to the employer and employee.

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