What Is a Relocation Home Sale & How Does It Work?

A relocation home sale is a real estate transaction designed to assist an employee moving for work. Unlike a typical home sale, it involves direct support from the employer. This employer involvement streamlines the selling process, allowing the employee to focus on new job responsibilities and geographic transition. This approach helps mitigate financial burdens and logistical challenges of selling a home due to a job change.

Understanding Key Parties

Several parties participate in a relocation home sale, each with specific roles. The relocating employee is the homeowner whose property is being sold due to a job transfer. Their role involves cooperating with the process and providing necessary documentation. The employer is the company initiating the relocation, offering assistance for a smooth transition.

Employers often engage a relocation management company (RMC) or a third-party administrator to handle the home sale details. The RMC acts as an intermediary, managing logistics, appraisals, and legal aspects. This company streamlines the process for both the employer and employee by leveraging its expertise. The RMC’s involvement helps ensure compliance with company policies and regulations.

Common Relocation Home Sale Methods

Relocation home sales commonly use several structured methods to facilitate property transfer. The Amended Value Option (AVO) begins when an employee finds a buyer for their home. Once an offer is secured, the relocation management company (RMC) purchases the home directly from the employee at that price. This allows the employee to participate in finding a buyer while benefiting from the RMC’s purchase.

The Buyer Value Option (BVO) is similar, where the RMC purchases the home from the employee based on an offer obtained by the employee from a third-party buyer. For both AVO and BVO, the RMC takes over the sale from the employee, assuming responsibilities and risks of closing the deal. These methods expedite the sale process by removing the burden of closing for the employee.

The Guaranteed Buyout (GBO) option involves the RMC offering to purchase the home from the employee at a price determined by an average of independent appraisals. This guaranteed offer provides certainty regarding the home’s value and a defined timeline. If the RMC sells the home for more than the guaranteed price, the employee typically does not benefit. If the RMC sells for less, it absorbs the loss.

The AVO, BVO, and GBO models are the primary methods for transferring home title in a relocation. These methods provide liquidity and security to the employee, allowing them to move forward without the uncertainty of an open-market sale. Each method offers a different level of control and financial certainty.

Tax Implications for Employees

Financial benefits from a relocation home sale can have significant tax implications. Under a Guaranteed Buyout (GBO) arrangement, the initial guaranteed offer from the relocation management company (RMC) to purchase the employee’s home is generally non-taxable. However, if the RMC later sells the property to an outside buyer for a higher price than the guaranteed offer, and the employee receives any portion of this increased value, that amount may be considered taxable compensation. This is because the employee is deemed to have received a benefit, even if funds do not directly pass through their hands, as the employer ultimately bears the cost.

For Amended Value Option (AVO) and Buyer Value Option (BVO) transactions, the purchase price itself is generally not taxable income, as it represents home sale proceeds. However, any additional payments or incentives from the employer or RMC beyond the home’s fair market value, such as a bonus or an “amended value” payment, are typically taxable compensation. These amounts are often treated as ordinary income and reported on Form W-2.

Employer-paid closing costs, real estate commissions, and other related expenses for the old home’s sale are generally taxable income to the employee. This includes attorney fees, title insurance, and appraisal costs typically borne by the seller. These payments are considered part of the employee’s overall compensation. The Tax Cuts and Jobs Act of 2017 suspended the deduction for moving expenses, making most employer reimbursements for these costs taxable income.

Other relocation benefits, such as temporary housing costs, household goods shipment, and final move travel expenses, when paid or reimbursed by the employer, are also generally considered taxable income to the employee. These amounts are typically included in the employee’s gross wages on their Form W-2 for the year the expenses are paid or reimbursed. In some cases, if an RMC makes direct payments to an employee that are not processed through the employer’s payroll, these might be reported on Form 1099-MISC.