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Fixed Fee Relocation Policies Are No Quick Fix

Fixed Fee Relocation Policies Are No Quick FixWith the economy still sputtering and the housing market in the dumps, companies are looking for ways to better manage relocation costs and risk. Lately, there has been much debate about which relocation policies are well suited towards the current market. Not surprisingly, fixed free programs have played a role in many of these conversations.

But, does a fixed fee homesale program really guarantee cost containment?  Maybe, but it’s kind of like wearing bigger pants – you won’t spill over anymore, but you’re not really in better shape.

Fixed fee relocation programs promise overall savings, lower risk, relocation cost management, reduced auditing, predictable budgeting and no losses on inventory. Indeed, a fixed free program is beneficial, but only if the fee averages less than the actual closing and carrying costs of the home.

This is a rare occurrence, however, because most of the companies selling fixed fee relocation programs are betting against this outcome.  The savings sold are based on an arbitrary, and often times exaggerated, estimate of costs as a percentage of the home sale price.  While an aggressive marketing plan and direct cost program might average less than 8 percent for a BVO, and 11 percent across guaranteed programs, I’ve seen the basis for the fixed fee programs average nearly double this amount.

Recently, a company approached us because they are considering a switch from their current relocation provider.  Most of their concerns focused on the differences between direct expense verses a fixed fee protected program.  In reviewing the current arrangement, we were provided with the following chart of a relocating employee’s closing statements and the fees that were applied.*

The results were alarming: 

Sales Price $920,000.00
Fixed Fee Charged (aka Vendor Income) 15.85% $146,612.50
Actual Expenses coverable:
Commission 6% $55,200.00
Settlement $375.00
Sales Tax $35.63
Mortgage release $65.00
Transfer Tax $16,470.00
Excise Tax $16,381.00
Total actual $88,526.63
Net to Vendor $58,085.50
Referral Fee Collected $10,488.00
Vendor income $68,573.50

*Numbers have been changed to protect the innocent. Same pricing scale applied.

We also came across a fee structure, where one fee was charged prior to a home having to go into inventory, but increased if the home failed to sell by the takeover date. That certainly begs a question – where is the motivation to sell the home?

Are you currently using a fixed fee relocation program? What has your experience been with fixed fee?

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