There are many reasons to consider the addition of a Sunset Clause to your BVO policy. To parallel as closely as possible the provisions of the tax-compliant Amended Value sale outlined in IRS Revenue Ruling 2005-76, Worldwide ERC recommends incorporating a “Sunset Clause” into your BVO relocation policy. This type of HomeSale program is often called a Delayed Guaranteed Buyout Program. In this way, the BVO program becomes nothing more than a properly structured Guaranteed Buyout or Amended Value transaction without the up-front appraisal of the home.
The function of the Sunset Clause is to provide a Guaranteed Buyout offer if the property does not sell after a defined marketing period. Under the Sunset Clause, once the home is marketed for a pre-defined period of time, MoveCenter will begin the appraisal process to establish a Guaranteed Buyout offer on the home. The designated marketing period is determined by the employer and can be as little as 30 days or as long as you want (most employers won’t go past 240 days, but some do). If the employee is unable to identify a bona fide buyer during this period then an appraisal is ordered to establish the guaranteed offer. Once determined, the employee is provided with an additional period of time to aggressively market the home before accepting the guaranteed offer —typically 30 to 90 days.
It is important to note that with a Sunset Clause, the Guaranteed Buyout offer does not necessarily need to be at the full appraised value; rather it can be based on a percentage (i.e. 95% or 97%) of the appraised value. This serves to incentivize the transferee to comply with the aggressive marketing of their home before falling back on the Guaranteed Buyout offer.
Our process flow for a BVO with Sunset Clause is flexible.
As a general rule, when the Sunset Clause is invoked, the following steps occur from the beginning:
- The BVO process begins with MoveCenter selecting multiple top performing brokers to compete for the listing
- Broker Market Analysis (BMA) are ordered
- Relocation Consultant discusses BMA’s and listing options with transferee
- Transferee selects their preferred listing agent
- Marketing strategy is developed and implemented
- POINT OF CHOICE: The BVO marketing period defined in your relocation policy can be as short or as long as you like. Some companies opt for 30 days while others opt for 240 or more days.
- When the marketing period passes without the transferee receiving an acceptable bona fide offer from qualified outside buyer, the BVO process ends and the GBO/AV process begins with strict adherence to the “eleven key elements of an amended value program” developed by Worldwide ERC, and all of the procedures cited with approval by the IRS in Rev. Rul. 2005-74
While not mandatory, providing a Sunset Clause is the most favorable way to protect the tax-exempt status of the BVO. Sunset Clauses also remove the possibility of the transferee being unable to sell their home, which would result in increased costs for the employer and high stress levels for the transferee leading to less productivity and a negative impact on their impression of their new job and new employer.