too complex

K.I.S.S.

Relo person is ONLY buying a house. Nothing to sell.

What “benefits” do they get from Cartus that requires the buyer’s
agent to cough up 40%.

Frank

It is very complex and you are asking that something be simplified that really cannot be. These are all of the things that a relocation company must take into account when administering the relocation policy of the employer. All of these considerations must be taken into account for what the relocation company has to do. The employer typically does not pay any type of fee for any of the actions listed above. The employer expects the referral fees on the home sale and home purchase to cover any expenses that the relo company incurs.

Once again, any reimbursements are based on the policy of the employer (such as new home closing costs). The employer drives the requirement for the referral to be paid so they do not have to pay any service fee top Cartus.

If you are looking for who to place blame for you having to pay a referral fee for the home purchase, blame the employer. It is their relocation policy that relo companies administer. They make it mandatory that their employees real estate agent pay the referral. If it was a “value” or “benefit” proposition, the employer would pay a service fee to relo companies; they don’t want to do that and would rather have any income that relo companies generate be paid by real estate agents.

Scenario – $400,000 home both ends; mortgage 80% LTV. Home has a sale and does not go into inventory to incur more costs for the employer.

Benfits that a typical homeowner will get:
1. Home Sale Assistance – these include the commission and other transactional closing costs. Figure on average 8% of the sales price of the home. $32,000
2. Home Purchase Assistance – typically about 3% of the Mortgage Amount (1% LOF, 1% DP, 1% transactionals). $9,600
3. Temporary Living – typically 30 days (includes Hotel & Meals) $4,500
4. Home Finding Trip – typically 5 to 6 days. $5,000
5. Shipment of Household Goods – $20,000 (depends on tariff, distance, and intra vs. inter state move)
6. Final Move Trip (old location to new location for family). $5,000

We are at $71,600 at this point. Base cost to move an employee. Does not include any type of Cost of Living compensation, Spousal Allowance, Spousal Assistance, Cost of a home in inventory, etc. Due to taxable income and the need to gross up expenses to make them “whole”, you will need to add another $10,000 in this scenario.

Cost is $81,600 base relocation. These “benefits” are a cost to the employer. Due to certain taxation laws, the shipment of Household Goods and Final Move (most of the costs) are not a tax generating event (See Publication 521 in the IRS Website http://www.irs.gov/publications/p521/index.html)

Let’s take the example of 6% commission on $400,000 and it is a 50/50 split. Your side of the commission is $12,000 of which relo companies are asking between 35% and 40%. We can use 40%. $4,800 to the relocation company, $7,800 to you. Most relocation companies have a “Relist Agreement” that states the relocation company is paying your commission and not the employee. This document is a part of the IRS 11 Step Amended process.

http://www.visionrelocation.com/pdf/IRSRulingonHomesaleTransactions.pdf

http://primacy.com/resources/Overview%20Two-Deed.pdf

In doing so, the relocation company pays your commission and not the employee. The relocation company also appears on the HUD1 as the Seller of record. So in giving a employee money back for a employer sponsored relocation, you are potentially tying them back to the sale and could be deemed to invalidate the IRS process to keep a homesale transaction as a business expense to the employer and not an income generating event for the employee. This is also why relocation companies have adopted a “two deed” process (which incurs more costs in states like Maryland that have a high transfer tax) to make the transaction more IRS compliant.

Granted that the duplication of paperwork is extremely redundant and just kills trees, but in the manner that the IRS has ruled on this, it creates the necessity for the paperwork to distance the employee from the actual transaction as much as possible. This is also the reason why the employee is not suppose to sign the contract or offer as seller; the relocation company representative is to sign as the seller.

The stance that the employer takes is that they are in fact are generating the referral as they have made a decision to move their employee and they are paying for the costs to relocate their employee. Employers do not want to pay for any service fees to anyone when their employee is relocating; what does that say about the employer? They dictate the relocation policy; the relocation companies follow the policy dictated to them by the employer and the guidelines of the IRS. Some employers have dictated that their employees only work with agents that charge a 5% commission and in some cases 4%.

I hope that this provides a little more understanding about the facts of the situation. Trying to get everyone to jump on the bandwagon of treating Cartus like a pinata does not provide the “why” relocation companies are asking for referral fees. Before you attack relocation companies, please remember that I probably can relate many painful, mind numbing experiences that I have had with real estate agents. I would be genuinely worried about them driving, peeling an orange, or un-doing velcro.

Is Cartus perfect; far from it. Part of the reason I left and I could spend hours discussing it. This blog has been going on for over a year:

http://www.topix.net/forum/city/danbury-ct/T0S07QMKLIGJ4IKMS

There are plenty of good people still there. You want to attack someone, attack the leadership.

Best Regards,
Jason

So help me get the math?

These “benefits” that the client is getting from the all so nicer employer… I don’t get it.

$10,000 commission.
$4,000 demanded by cartus or employer

Homeowner is given $1,000 in “benefits”

How is that the employer being so nice? Why doesn’t the agent just give the homeowner $1,200?

I still don’t get how the employer butting in, claiming to give benefits, but actually profiting from the transaction is an added perk.

Frank

If you as the List Agent refuse to pay the referral fee, the employee can have all of their homesale benefits pulled or have other items reduced or removed all together such as a home sale bonus, temporary living allowance reduced, etc. If the employer decides to make the homesale costs a Direct Reimbursement (see above posts), it could have drastic and severe tax implications for the employee.

Offering a monetary benefit to the seller would be of no benefit since the employer’s relocation policy will dictate what the employee will get. If the employer feels that their employee is attempting to circumvent their relocation policy, they may completely pull any type of relocation assistance (there are employer relocation policies that state the employee must have their agents pay a relocation on the home sale and home purchase side or they will receive no relocation assistance at all and the employee will have to pay their own bills). He is more concerned about the style of the blog and no consideration for the content. Remember, “He’s not too busy for you”; but he can provide misleading and inaccurate information that can jeopardize your customer’s (the employee) benefits and then I am sure once again, all blame will be placed on the relo company.

On the Home Purchase side, the employer may take away all of the reimbursement of the new home closing costs or drastically reduce the amount to be reimbursed.

What has been failed to be undestood through this entire blog is that the employer drives the relocation policy (and the subsequent paying of a referral fee to the relocation company), not the relo company (they just administer the policy of the employer). This thread was not an educational piece on relocation companies and why referral fees are being asked for; it was a myopic attempt attempt to solicit other agents to “grab your torch and pitchfork”.

Frank does not do any of the agents that place comments here any service; he is also probably jeopardizing several employees relocation benefits by providing the information in this manner. Will Frank step up and provide assistance to any employee that loses their relocation benefits or make up the difference because of this blog? I seriously doubt it. He will continue from a perspective of convenience so that he does not have to be accountable for his actions or information; must be nice,

The only question he does ask is about the loss on sale. In the vast majority of cases, the employer incurs the loss (or gain, never happens though) on the sale (unless it is a fixed fee contract which were vogue about 10 years ago but in these markets incur severe losses so relo companies rarely offer them anymore). Once again, the employer dictates the appraisal policy on the employee’s home, not the relocation company. Typically, the appraisal parameter will be “normal market time, not to exceed 90 days”. This means that the appraiser has to come up with a value of the home to gain a sale in 90 days which in these markets, can substantially drive the value down. The loss on sale is a part of the “risk” that the employer takes in order to be compliant with the IRS 11 step amended process.

Why is this blog thread on multiple sites? Self grandizing.

PS Have you heard any horror stories like this?