Yes, that’s right. Inflation is on everyone’s mind, and it is definitely contributing to the increased cost of relocation. Let’s just list the relocation benefits that have gone up:
- Household goods moves
- House hunt trips (flights, hotels, meals, taxis/Ubers, rental cars)
- Temporary accommodation
- Final trip travel (flights, hotels, meals, taxis/Ubers, rental cars)
If you have a Miscellaneous Allowance, it is not going as far as it used to. All of those costs an employee used it towards have gone up in price. There is one thing that is coming down in Canada, amidst all this inflation. What is it? It is home prices.
Depending on the property type, the buyer pool and the area, your Canadian home is likely to be less expensive since the recent interest rate hikes by the Bank of Canada. This bad news for home sellers should be good news for relocation budgets shouldn’t it?
Not necessarily #1:
If you have a Guarantee Home Sale program, you are likely going to start seeing inventory properties, capital loss and carrying costs in order to relocate the same person you did last year. H
ome sale prices have been dropping and after the latest Bank of Canada rate hike, they are likely to drop again. Since home prices have dropped approximately 4.5% (at the time of writing) since one year ago, this means that when you relocate that person again, they may be experiencing a loss, depending on when they bought.
You will extend your Guarantee Plan Price, based on appraisals, but a declining market means that even appraisers are going to be off by a little bit, if that property lasts on the market 90 days. In addition, there is the old rule: homes lose 5% upon vacancy. So, expect increased losses in your program and carrying costs.
What to do about it?
We recommend increased market conversations with your Relocation Management provider. How are they conducting their appraisal reviews for accuracy? How has their track record been on appraisal accuracy? How do they market inventory properties to reduce time on market and capital loss.
Not necessarily (and perhaps unexpected) #2:
If you do not cover the costs of selling a home in your program, you may think declining markets may not affect you. We have a number of clients who provide Capped Relocation Allowances for their employees. These can be based on historic figures such as $30,000 or $40,000, that were arrived at based on hiring manager budgets and based on HR experience as to what amount likely worked to get their employee from A to B.
Other clients ask us to conduct a Preliminary Relocation Budget, based on an interview with the employee about their needs. But in both cases, many Capped Relocation Allowances have neglected the cost of selling the origin home. This was possible when employees felt “house-rich”. They no longer feel house-rich.
On paper some of them will still be making a profit on the sale of their home compared to 3-5 years ago (prices have not dropped that much). However, others, who have purchased more recently, or re-mortgage recently, may not be “house-rich” at all. Even some of those with “paper” losses feel like they really have lost money in the market, because they are forced to sell because of relocation. When an employee doesn’t feel “house-rich” they start demanding that their real estate commission and closing costs be taken into consideration in the budgeting of their Capped Relocation Allowance. If the company agrees, your costs go up considerably.
What can you do about it?
Speak to your relocation partner. Not every relocation will have these increases, but many will, and understanding what the actual increase is likely to be is the first step. When was the last time you communicated with hiring managers about your relocation program? Now is a good time.
Explain to hiring managers that when they relocate someone now, it results in a pinch on their finances, because homes are selling for less, and as a result, homeowners are going to be demanding that home sale costs be covered. The $40,000 simply won’t go as far in the minds of many of your employees as it used to. There may be other areas to cut back, but these will not be as significant as the cost of adding real estate expenses. How much does equity matter in your relocation program, because not everyone will demand that these extra costs be covered.
Talk to your Relocation Management Company to find out how to best prepare for the change based on your locations and other policy benefits that are being calculated into the Capped Relocation Allowance.
If you have Guarantee Home Sale program, now is the time to get back to basics with your relocation company. How do they conduct appraisal reviews? What are their marketing strategies? How will they work to keep you costs as low as possible?
Costs are definitely increasing in relocation, but getting key personnel from point A to point B has also become more important to companies, so have a strategy in place for the change.