Home Buyers: Working with a relocation company is a headache

Why and how are relocation companies involved in real estate transactions?

Relocation companies get involved in residential real estate transactions when they are hired by an employer to assist an employee being transferred or a new hire who will have to sell and/or buy a home in the process of taking on their new position. Since selling a home and perhaps buying another one can be a concern for a prospect for a new position, the relocation assistance helps the employer overcome this objection from the candidate.

In the case of the transferee who now must sell his home, the relocation company may have the homeowner act as the seller, have the property listed with a local broker and negotiate offers. In most cases, once the homeowner/transferee verbally accepts an offer, the relo company steps in and takes over the role of seller, the relo company is named as the seller on the sales agreement and the property will be transferred from the transferee to the relo company and then from the relo company to the buyer. In other cases the relo company may also offer the transferee a buy-out (usually at less than market value), in which case the relo company purchases the home from the transferee; the relo company becomes the owner and seller and lists the property with a local broker and negotiates offers, etc. Sometimes the transferee has the option to try to sell the property for a period of time and then, if not successful, may accept a buy-out from the relo company.

The relocation company also covers some of the transferee’s costs of selling her property. This compensation to the transferee is somewhat offset by the relo company negotiating discounts with service providers involved in the transaction. Thus you may be encouraged or required to use certain
vendors for repairs, home warranties, title work, etc. Also, the agent and broker representing a transferee will be required to pay the relocation company a referral fee, nowadays usually 35% to 45% of the commission (in exchange for having to do additional paperwork and reporting to the relo company). In case you were wondering why your agent was not excited to learn that a relocation company is going to be involved in your real estate transaction, now you know.

What is the effect on the buyer of a property in which a relocation company will be involved with the seller?

In general, there will be more paperwork, additional steps in the process and some restriction of the buyer’s rights. The buyer will be required to sign addenda in addition to the state agreement of sale which is used in all residential real estate transactions. The terms and conditions in the addenda will supersede the agreement of sale where there is a conflict, unless it is contrary to state real estate law. The addenda serve primarily to protect the relocation company from liability in the transaction and enable the relocation company to dictate service providers.

From whom are you buying the house?

The principle difference between a deal with or without a relo company is who is transferring the property to you. Almost always, if a relocation company is involved, the relo company will transfer the property into their name and then transfer the title to you at your closing. Therefore, you are actually buying the property from the relo company. Included in the addenda that the buyer will sign is a disclosure that you are buying the property from a relocation company that never lived in the home and therefore has no knowledge of any defects in the property and thus no liability should defects be later discovered. The buyer will usually receive a disclosure completed by the homeowner in which any know defects in the property are to be disclosed. Since the buyer has no contract with the homeowner, but rather with the third party relo company, this disclosure is reduced to a “for information only” status as there is no recourse to any party for defects in the property that are found outside of the buyer’s inspections.

Time Frames

The relocation company’s addenda also may modify timeframes in the agreement of sale, particularly buyer’s inspection period. This is very important for the buyer to make note of since the buyer’s inspection contingency and the right to ask the seller for repairs or credits expires at the end of the inspection period. If the buyer misses this deadline, the buyer buys the property as-is and can no longer back out of the deal nor request repairs or credits regardless of what problems there may be with the property.

Title Work

When the relocation company transfers the property from the transferee to itself, a title attorney is hired to do a title search and issue title insurance. When you as a buyer purchase from the relo company, you will also have a title search done and title insurance issued to protect you and your lender from defects in the title. The relocation company addenda you sign will most likely address title work as well and may offer you the opportunity to use the same title attorney or company for a discount or they may “require” you to use their title company. In the state of Pennsylvania the buyer always has the right to choose a title company. Makes sense because the title company is working to protect the interests of their client, i.e., the buyer. The title company (also referred to as settlement company or closing company) generally also takes care of all of the settlement work, the gathering of documents and monies for the transaction. Since in Pennsylvania fees for title insurance are standardized and this is the largest of the fees paid to the title company, the discount offered for using the seller’s title company is minimal. Considering this along with the benefits of having a title company that is working for you, it is generally better for the buyer to choose his own title company.

Inspection repairs

One possible advantage to the buyer of a relo property is related to inspection repairs. Relocation companies are very risk adverse and as such are more likely to agree to inspection repairs than some homeowner-sellers might be. The relo company may have their own vendors to do the repairs and there may already be a procedure for the resolution of inspection repairs in the addenda you signed. You may also be required to sign off on inspection repairs once they are complete.

Can I get a better deal by buying a relo listing?

Maybe, maybe not. In general, there is always some level of urgency in relocation sales. The transferee has already accepted his new position and may be separated from his family or unable to purchase a home in his new location until his current home is sold. In some cases the transferee may be able to purchase a home in her new location but will suffer with two mortgages/taxes/insurance/utilities until the first house is sold. On the other hand, if the seller is offered a good buy-out (the percentage of the market value that the relo company will pay is based on the level of the transferee’s position, how badly the company wants him and/or how well the transferee negotiated) he is not motivated to accept a low offer. If the relocation company has taken ownership of the property, they will have had at least one appraisal done so they will feel they have a good handle on the value of the property. The relo company will want to get as much as they can for the property as that ups their profits. At the same time, they will be anxious to move the property and get their cash back out of it. And, insofar as they work with a much larger pool of money than an individual homeowner, they can absorb more “loss” than can the homeowner.

What is a buyer of a relo property to do?

You are not going to like to hear this, but you really need to read carefully all of the documents you are asked to sign before you sign them. Ask questions of your real estate agent on anything you do not understand. In some cases, you may want to consult with a local real estate attorney (i.e., one who works mostly on real estate in your state) to make sure you know your rights. Sometimes it is possible to deviate from the relocation company’s boiler plate documents, but it must be done in writing signed by both parties to be effective. If you know the rules of the game before you start, you will have a much easier time getting through the process. It also behooves you as a buyer to have very thorough inspections done on the property, both because you will have no recourse after the inspection period and so that you can take advantage of any opportunity to have repairs addressed by the seller.

Given two identical homes, one with a relocation company assisting the seller and the other without, most buyers would choose the home without the relo company. But most buyers do not have this option.

2 thoughts on “Home Buyers: Working with a relocation company is a headache

  1. This is an excellent article.
    Around here in Ohio the relo companies’ riders specify that the buyer has no ability to walk away due to inspection findings. Do you have any experience with these clauses and the ability to override them?

  2. Don,

    Thanks so much for this balanced and helpful outline of the role of a relocation company in the homebuying process. My wife and I just had an offer accepted and only then discovered the presence of a relocation company in the transaction. I’m continuing to do research but your article as well as others have helped to ease my mind considerably.

    Best,

    Cyrus

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