Wake Up

Albert Einstein once said, ‘Insanity is doing the same things over and over again and expecting different results’. Frances Martinez Myers explains why yesterday’s relocation strategies don’t work in a depressed real estate market.

It's madness the way companies are using old relocation models to move employees in a volatile real estate market. The depressed housing market has changed the game, yet a trend suggests that employers are willing to suffer losses associated with outdated strategies rather than innovate market-relevant policies. A weak economy, declining home values, a saturated market and the continued threat of foreclosures have changed the rules of relocation. The average time to sell a home now exceeds 200 days in many areas, but despite this, many companies are still trying to make yesterday’s strategies work. The resistance to change is most obvious in the RFP (request for proposal) process used to vet relocation partners. Organizations spend up to six months shopping for a partner. Two things are remarkable about this practice in this environment: First, employers clearly expect the same services and pricing that were used in a boom market. Second, companies are asking routine questions instead of those relevant to a volatile market.

During the housing boom, major relocation players invented fixed fee pricing to help companies manage costs. Homes sold quickly, guaranteeing the employer a fixed expense and the relocation company, a fair profit. The fixed fee was based on the client’s volume and typically averaged 11 percent of the Guaranteed Buyout. This model worked because it was based on the assumption of a quick sale. When the market shifted, however, many relocation companies suffered huge losses because properties began taking up to five times longer to sell. They banked on the fact that the market would improve. Some relocation companies had to financially restructure and reduce staff. Others have since backed away from these price structures to avoid the same disaster. 
 


The expectation of fixed relocation costs continues to drive the RFP process, which is preposterous. Property values will not bounce back anytime soon. In most instances, guaranteed buyouts are no longer a benefit to the employee (if established value is less than the original purchase price). These transactions are also losses for employers if they try to keep employees whole against the loss. Most companies cannot afford to shoulder these expenses and continuing to do so may be viewed as fiscally negligent. Employers must look at their business as a whole and revamp their relocation strategy for the current environment. Are your relocation benefits feasible for your employees’ needs and your company’s budget? Are your expectations of suppliers realistic? Are there alternatives to a home sale package? What about property management options? These are important checkpoints you should weigh before an RFP is ever initiated.


Equally important, you must turn RFPs into a meaningful vetting process that helps you identify service providers that have the expertise to manoeuvre property sales in a distressed market. Look at issues that are relevant to your business now. 
 


Ask potential partners this: What percentage of your relocation team has a real estate license? 
What experience has your team had with other bad markets? 
How do you establish fair market value? 
How can you help us reduce our costs? 
What are your average days on market? What kind of experience do you have handling short sale scenarios? 



It’s time to get realistic about the market and your relocation program. Flat fee relocation programs are a thing of the past. Guarantee Buyouts and BVO programs may need to be tabled for now. Using an updated vetting process will bring your needs into focus. With a buyer’s employment market working in your favor, the timing has never been better to modernize your strategy.

Frances Martinez Myers is SVP for Employee Transfer Corporation and its affiliate, ETCREO Management. She has 33 years of industry experience both domestically and internationally. In 2005, Hispanic Business named her one of the top 100 most influential Hispanics in the US and in 2006, Realtor Magazine named her one of real estate’s 25 most influential thought leaders.