Pros and Cons of the Buyer Value Option – SIRVA Weighs Risk & Reward

Over the past several years, SIRVA has seen relocation home sale programs trending towards BVO (Buyer Value Option).  This program aids the transferring employee in selling their home, without having an obligation to pay a real estate commission and most closing costs, but provides no guaranteed buyout option.  The BVO program is typically seen as the less costly alternative to its AVO (Appraised Value Option) counterpart which was the home sale program standard for decades.  But as relocation spend has become scrutinized over the past several years, the BVO program has gained significant traction.  

Why?

Reduced Risk of Inventory:  Because a BVO program does not include a guaranteed buyout, the likelihood of inventory is greatly reduced for the company.  Inventory typically equates to carry costs and potential loss on sale.  However, please note that the risk of inventory is not omitted completely.  For example, if a transferring employee sells their home using atypical home sale two transaction program and the third party buyer later backs out of the contract after repair negotiations have been completed, the sale from  the transferee to the relocation service provider or employer is guaranteed and the home would come into the company’s inventory.  Beyond the risk of now having an inventory property, the home is being purchased at a price set by a third party buyer not by appraisals.  This could mean the home is being bought at an inflated value.  This becomes especially tricky when the reason the offer fell through is due to the home not appraising during the third party buyer’s lending process.  With that being said, fall throughs on average occurs 3-5% of the time.  So the risk is limited but by no means gone. 

Flexibility:  Some organizations choose a BVO program because of the perceived flexibility the program offers.  Because the risk of inventory is reduced, companies often feel they can be more lenient on marketing efforts and eligibility.  But this could not only set a relocation up to fail, it could cost the company even more money in the long run.    

• Marketing:  Allowing a transferring employee to list above market value could increase time on market and risk of fall through.  Over-listed properties typically sit on the market longer and sell for less.  If you add an unexpected fall through to the mix, the company could be left with a shopworn home in inventory.  
• Eligibility:  Eligibility should be no different in a BVO program than an AVO program.  If the home doesn’t qualify to be in a home sale program, a BVO program will not change the likely outcome of the home sale and the significant risk of the property ending up in inventory.  Ineligible properties are typically more challenging to sell and are costly should they come into inventory.   It is never a good idea to be lenient around eligibility when there is still a risk of ownership involved.