What is a BVO, or Buyer Value Option, program? The answer is best explained in the context of a traditional Guaranteed Buyout (GBO) program. Under a GBO, the relocation management company orders two home appraisals and simply averages the two to determine a guaranteed offer. As an example:
- Appraiser A values a relocating employee’s home at $330,000
- Appraiser B values the same home at $335,000
- $332,500 is considered the “GBO”
The relocating employee then takes the offer of $332,500 and moves to their new location unencumbered by this former home. In turn, the relocation company sells the property in the open market, and you the employer are charged for all of the associated real estate expenses upon conclusion of the sale.
The employer can treat the home sale costs as “business expenses,” so none of the expenses are considered income to the employee (for federal tax purposes). This process is validated by the IRS in Revenue Ruling (2005-74), which specifically addresses this type of home sale program.
So, what is a Buyer Value Option (BVO)?
Essentially, it is very similar to a GBO with the exception that appraisals are never ordered. Rather, an employee is responsible for listing their home for sale—with marketing assistance from the relocation company—and obtaining an outside buyer willing to purchase the home at a fair market value acceptable to the seller, buyer, and relocation company.
If the contract is deemed valid, the employee is funded their equity based on this outside offer amount. The relocation company will then close the property with this outside buyer at a future date, and all home sale costs are treated in the same manner as with a GBO.
Therefore, the Buyer Value Option home sale program provides all of the tax benefits to the employer and employee, but it is incumbent upon the employee securing an outside buyer ready, willing, and able to purchase the property at a fair market value.
Why should you offer your relocating employees a BVO?
A properly structured Buyer Value Option program that adheres to IRS requirements provides significant tax savings that benefit employees as well as employers.
WHR Group provides the following support for helping an employee sell the home to an outside buyer:
- Obtain two Broker Price Opinions (Broker Market Analyses)
- Reconcile the two opinions of value
- Suggest a listing price
- Develop a comprehensive marketing strategy
- Obtain pictures of the home
- Provide tips to paint, de-clutter, etc.
- Assist with Realtor selection
- Obtain weekly feedback from Realtor
- Assist in contract negotiation
Be aware: From a cost standpoint, when selling a home, the following expenditures are typical in a home sale transaction.
- Real Estate Commissions
- Recording Fees
- Transfer Taxes
- Title Expenses
- Escrow Fees
- Seller Concessions