What’s the difference between direct reimbursement, BVO and AVO?
Choosing the right home sale program for your company and your employees can be complicated. Let Home Sale Counselor, Kelly House (yes, that is his real last name), walk you through the options.
Complete transcript: “Hey there, Kelly House, Home Sale Counselor with Plus Relocation. Who better to answer your home sale questions than the guy with the last name house. The question today is, ‘What is the difference between direct reimbursement, the BVO, and the AVO home sale programs?’
Direct reimbursement, this is pretty simple, so the employee will actually sell the home directly to the new buyers and submit for reimbursement after closing. Those expenses are normally seven to eight percent to cover commission and closing costs. The benefit here is you have zero risk of this home coming into inventory. The risk or the drawback is that those funds that you’re reimbursing them for are considered taxable income and therefor a decision needs to be made on whether or not those are going to be grossed-up.
The next level of benefit is the BVO. BVO stands for buyer value option. In this program, the employee will list the home and market it until an outside offer is received. At that point, the relocation company steps in to purchase the property and become the owners of the home to resell to the new buyers. Again you have commission and closing costs being covered but the main benefit of this process is that when it’s administered correctly it creates an IRS tax shelter so that those funds that are being applied do not need to be considered taxable income or no determination on the gross-up. The drawback or the risk here is that if the deal falls through then you bring that home into your inventory. That’s called fall through, and at that point additional expenses start to be incurred. We’ll talk about those in the AVO program.
AVO stands for appraised value option, sometimes referred to as guaranteed buyout. What differentiates this is that if the employee is unsuccessful in selling the home doing some minimal marketing requirements, normally sixty to one hundred and twenty days, they have the option of taking the buyout. Now they take a buyout, they’ve cashed out their equity and they complete their relocation. At that point, the home comes into inventory. When you bring a home into inventory you start incurring additional expenses. You have monthly mortgage payments, property taxes, insurance, maintenance, and you can have additional loss on sale from where the home was purchased. As you can imagine, these expenses can add up so it’s important to forecast what those expenses might be and budget appropriately.
The benefit here is kind of two-fold. One, if the home sells upfront in that minimum marketing requirement, it looks very similar to the BVO where commissions and closing costs are covered through a tax shelter. The second benefit is that the employee knows a specific end date of when they can take a buyout and complete their relocation. The drawback or risk here: It’s really the costs associated with this program. When a home comes into inventory you are looking at those additional expenses and will need to plan for them accordingly.
That was a quick look at the three options when selecting a home sale program. I hope you feel confident in making the right choice of benefit for you and your employee. Thank you.”