By Dina ElBoghdady and Allan Lengel
Washington Post Staff Writers
Saturday, June 14, 2008
By the time Ed Drouhard and Jill Divine figured out they were victims of the housing slump, it was too late for them to do anything about it.
The couple moved to the Washington area soon after Drouhard accepted a government engineering job. They left behind their home in the Florida Panhandle, confident that if they did not sell it, the relocation company hired by his new employer would buy it from them at an acceptable price.
They were wrong.
The housing downturn hit. Their waterfront property just 10 miles from the Gulf of Mexico languished on the market at $559,000, then $499,000. And the relocation company offered them 66 percent of the appraised value of the house.
"If we knew then what we know now, we would have stayed where we were," Divine said. "But we'd already moved. I'd given up my job. My husband had been replaced. And we were stuck with a $3,600-a-month mortgage payment. It was really stressful."
These kinds of job-and-housing problems were a rarity when the housing market was sizzling and sellers could quickly offload their homes for a tidy profit.
But now, depressed sales and sinking home prices in many parts of the country are complicating relocations and transfers for thousands of workers, including those coming to and leaving the Washington area, known for its transient workforce.
A survey last year by Worldwide ERC, a nonprofit association that represents relocation specialists, found that depressed home values emerged as the No. 1 reason for resisting job transfers for the first time in more than 10 years.
Of the member organizations that reported employee reluctance to move, 71 percent cited the sluggish real estate market as an impediment to a job-related move, up from 16 percent last year.
"This is a dramatic shift," said Cris Collie, the group's chief executive. "The top issue has consistently been family concerns, such as dual-career couples, children at a critical school age or caring for elderly parents who live nearby."
Against that backdrop, it has become more important than usual to consider the financial trade-offs of a job-related move.
Pandra Richie, vice president of relocation at Long & Foster, the Washington area's largest real estate brokerage, said that if an employer is willing to pick up the tab for a move, the employee needs to be clear about who pays for what and how much it will all cost.
The average cost to transfer a homeowner is $62,000, according to Worldwide ERC.
"A lot of people don't realize that. So they get a $30,000 lump sum to move and they say: 'Wow. That's great,' " Richie said. "They may not realize that it's not enough to cover their costs and that a lump sum is all taxable income, so they're not really getting that amount of money."
Employees may be better off having employers agree to pick up specific expenses, Richie said, such as the actual move, the cost of temporary housing, the bill for house-hunting trips for the family, and the closing costs for the home they are buying or the one they are selling.
Some corporations and institutions handle employee moves and related negotiations internally. Others contract the work out to relocation companies that administer the employer's policies, including buy-out packages.
These packages guarantee that the employer or the relocation company will buy your house at market value and resell it if you can't sell the house on your own.
Only the most generous of employers offer these deals now because they have become money losers for many employers, relocation firms and transferring employees, as Drouhard and Divine found.
In the private sector, corporations generally assume any losses on the homes they carry even when they are working with a relocation firm. In the public sector, the government typically pays the relocation company a flat fee for the homes it acquires and the relocation firm takes the hit if the house sells for below that fee.
As a result, many employers are limiting the buyout offers they make only to hard-to-get executive-level recruits, said Sally Stetson, co-founder of Salveson Stetson Group, an executive search firm in Pennsylvania. "But even these top executives can be very disappointed with what they get for their homes."
That's because buyout programs are designed to be fallbacks.
The relocation company typically assumes responsibility for the employee's home 90 to 120 days after the owners have tried to sell it on their own. The thinking is that by then, the employee has put forth his best effort to sell the house and failed.
The relocation firm is left with a house that has been exposed to the market for a long time. That alone drives down the price, said Richie of Long & Foster. The home is likely to be vacant, another negative since it may not show well if it's not furnished and decorated.
Maintaining a vacant house can cost about 1 to 1.5 percent of the value of the home per month, Richie said. On an $800,000 house, the carrying costs could total up to $12,000 a month.
Built into those costs are vacant property insurance and maintenance expenses, said Carmelita Brown, vice president of business development at Prudential Relocation.
"Once an employee turns a house over, they're done with it," Brown said. "It is our job as a relocation company to turn those homes around quickly once we get them so that the carrying costs do not keep mounting."
Also, take into account that an appraisal done for relocation has a different purpose than one done for a mortgage. Relocation appraisals involve predicting how much a house will be worth months down the line if it does not sell. For instance, if home values are declining 1 percent a month in a certain area, then it is reasonable to expect that a house will be worth less in three or four months. The relocation firm values it accordingly, Richie said.
That's where a seller's perception of a home's value often clashes with the estimates from a relocation company. "Very rarely are you going to get what you think your house is worth," said Richie of Long & Foster.
In the past, some companies would make up the difference between the appraised value and what the home sold for, Brown of Prudential Relocation said, but no more. "You really can't count on your employer to make you whole."
Drouhard and Divine, the Florida homeowners, said the relocation firm handling their house determined that it would be worth 66 percent of its value in 120 days and made an offer based on that estimate.
The couple said they rejected the offer because it would not have covered what they owed on the house.
"We knew they were not going to give us the best deal," Divine said. "But we never thought the offer would be that low."
The couple took their home off the market. They're now renting it out at least through year's end.
Mark Fegani, a mortgage banker and president of Olympia West Mortgage in Vienna, said buying a home before selling another can be risky. If that's the route a person chooses, he or she should consider worst-case scenarios.
"You have to be able to afford all the payments because you can't assume your house will sell quickly," Fegani said. "It comes down to how comfortable you are with your disposable income at the end of the day. Do you have enough money left to live comfortably?"
Some people may find they do. For instance, a couple who are paying $2,000 in monthly rent may find that they qualify for a $2,000 mortgage on a new home.
They may have to take on more maintenance costs, but they can make up for it in other areas, Fegani said. "It's going to cost you less to move once instead of twice. You also may have additional deductions if you're owning a house."
Also, some lenders provide slightly more favorable borrowing terms to a person being relocated because they figure that person must have job security, Fegani said.
If the down payment is an issue, home buyers may want to consider using an existing home-equity line of credit to come up with the cash, Fegani said. But do not take out a new credit line for that purpose and misstate your intentions about living in the house. That's fraud.
Another, more costly option would be taking out a bridge loan, a short-term mortgage secured by the equity in the home you own. They are not widely available, but they're an option for well-qualified borrowers who can handle multiple loans, Fegani said.
Phyllis Hassani hopes to avoid having to make all these decisions.
Hassani, a database administrator with the American Red Cross, listed her Springfield house for $370,000 after her job was eliminated in Washington.
Her choices were to transfer to North Carolina or leave the Red Cross. She chose to move, and now she's worried about finding a buyer for the house.
She's unhappy about the asking price. A year ago, she could have probably asked for at least $100,000 more, she said.
But on the upside, Hassani figures the move will probably be a wash in North Carolina. "You can get a lot more for your money there," she said. "Otherwise I don't know if I would have considered going."