Aiding people uprooted by transfers to relocate in tough housing market
It's getting harder and harder for most people to buy a house. Yet, despite the historic highs in mortgage-interest rates, the pace of corporate transfers goes on even as both corporations and transferees face unparalleled complexities in the relocation process. It is perhaps the least affected phase of the real-estate business today.
New techniques are being used to smooth out the transition wrinkles.
Overall, the volume of home sales last year was down substantially from previous years and has shown little indication of recovery. About 2.8 million previously owned houses were sold last year, compared with 3.7 million in 1979 and 3.8 million in 1978.
Simply, transferred employees are in a must-sell, must-buy situation. They cannot simply decide to repair or modernize their existing home so as to avoid the high cost of financing another home.
The average cost of a company to transfer an employee now is a staggering $28 ,000, according to a report from the Employee Relocation Council, and includes the cost of helping the employee sell one house and buy another.
The primary problem being faced by businesses that must transfer employees is the often sharp difference in interest rates between the house sold and the one bought.
Approaches being taken to solve the problem vary from company to company. In a survey by Relocation Resources Inc., nearly every one said it had developed some kind of formula for payment of interest-rate differentials to relocating employees.
The most common formulation, the survey said, is first to establish the difference between the interest rate on the old house and the higher rate on the new house. This amount is multiplied by the mortgage balance of the new or old mortgage (or medium point between the loan balaces) times a specified number of years, usually three.
Most companies that have developed such plans also stipulate a maximum amount that can be paid to the employee to compensate for increases in the costs of home mortgages.
Other methods are also being used to solve, or at least ease, the problem. Some are simple, others highly complex. Some plans simply increase the employee's salary to make up the difference.
One company reports it gives its employees one week's salary for each percentage point the new home mortgage rate exceeds the old. Another gives employees a flat month's salary.
Still another approach is to reimburse employees quarterly at the rate of $ 150 for each one-eight of a percent increase in the new mortgage interest rate over the old.
Other key trends are emerging in the wake of new and complex factors involved in relocating employees. For example, more companies are using the services of third- party home-buying firms, which actually buy the house from the transferred employee and then market the property itself.
Ten years ago, about 19 percent of all major companies used such a home-buying service. Today, nearly half of the companies say they use the services.
Also, more transferred employees are using the services of intercity referral- relocation networks of real-estate brokers. Examples of established networks are Inter- City Relocation and All Points Relocation Service. These groups offer a variety of relocation services to both the employee and the employer. They are structured specifically to assist in the relocation process.
The number of transferees who must relocate their home base is expected to continue at a high level through 1981 -- and probably through the entire decade of the '80s. New systems and techniques will continue to emerge, designed to help the transferee and his family during what is often one of the most traumatic times in family life.