Moving without tears: help for executive transfers

Your boss is offering a new job that sounds great -- more money and increased responsibility. The problem is, the job is in another city. With mortgage rates at stratospheric levels, houses typically sit on the market for five months before selling. And few employees want a new job if it means making mortgage payments on two homes -- one at the old job location and one at the new.

To make a new job look like a move toward the executive suite rather than the first step toward bankcruptcy, a growing number of businesses are hiring corporate relocation companies. These relocaters purchase a manager's current house so the transferee can move with cash in hand to purchase a new home.

Merill Lynch Relocation Management Inc. wil purchase 20,000 homes this year, 20 percent more than last year, according to its marketing director, Patricia Matteson. At Homequity, a subsidiary opf PHH Group Inc., the value of homes it sold for employees in the 12 months ending in April was $1.4 billion, up 27 percent from the previous period.

Business is booming because more companies are using relocation services. Some 56 percent of the 800 large companies belonging to the Employee Relocation Council now use third-party relocation services, according to Christopher Collie , the council's executive vice-president. In 1976 only 34 percent of the member firms used such services. The council is a Washington, D.C., research group for large corporations.

The relocation services are also profiting because, after holding back on executive moves in 1979 and 1980, some companies are stepping up the pace. Merrill Lynch reports moving activity by individual clients was down 23 percent in 1979-80 but was up 28 percent in the first seven months of 1981.

"Companies recognize they have to learn to live with what is going on," explains Keith Wheelock, president of the Fantus Company, the relocation arm of Dun & Bradstreet.

Firms cite a variety of reasons for signing on with relocation companies. For example, Prudential Insurance Company of America signed on with Merrill Lynch this year because it wanted to offer a uniform level of service to transferred employees and trim move-related costs.

Because the relocaters handle so many moves, they can get volume discounts from moving-van companies. Homequity contends it can trim a client's cost for moving goods by up to 13 percent.

International Business Machines has used Merrill Lynch and Homequity since 1977. The key appeal of the outsiders, in IBM's view, is their ability to buy and market the homes transferred workers leave behind. Selling a home to a relocation company "relieves the employee of the concern for the home he or she is leaving and enables them to more quickly become productive and settled in the new work location," an IBM official says.

Of course, not all companies that offer to buy a worker's old home handle the transaction through a third party. For example, General Motors Corporation moves "a couple of thousand" managers a year, a GM spokesman says. With that kind of moving volume, "it makes sense" to handle moves internally, he says.

Due to the slow pace of home sales, GM is sitting on an inventory of some 500 homes. Sluggish sales are also affecting the relocation companies. A house now sits in Merrill Lynch's inventory for an average of 150 days, vs. 115 a year ago.

"We are very good and very professional but we are not magicians," says the company's Ms. Matteson.

Companies like hers usually pass the costs of a slow-moving house onto their client. For example, the longer one sits with a for-sale sign, the more it costs the employer. The cost of carrying an unsold house -- including mortgage payments, heat, light, and maintenance -- now runs between 1.75 and 1.8 percent of the appraised value of the home each month, according to C. William Hartge, chief executive officer at Equitable Relocation Service.

Besides paying carrying costs, the employer usually picks up the tab for real estate commissions, moving household goods, and giving the worker cash to offset higher mortgage costs at a new job location.

According to Joan Zawachi, market research manager at Homequity, some 80 percent of its clients now help offset the higher mortgage costs. "You can't get people to move without it," she notes. In addition, she says, most firms now ensure that the transferred worker will not receive less for a house than he paid for it.

In return for holding a transferred manager's hand during the move, the relocators typically receive a fee of 1 1/2 percent of the appraised value of the home. This covers overhead, administrative costs, and profit. In addition, the hiring company pays the costs the relocation company incurs in running each move.

With the real estate market slipping, relocation companies are adopting a variety of strategies to unload homes they purchase from transferees. In March Equitable Relocation began providing first mortgages to buyers who could not secure financing from other sources. And Merrill Lynch will provide second mortgages to buyers who need additional funds to make a purchase.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.