Should Transferees
Sell Their Homes?

April 9, 2002 -- Employment growth has stagnated in the U.S., thanks to a shaky economy that's forced many companies to tighten their belts. With job security uncertain, relocating corporate executives -- once moved around the world like pegs on a Battleship board game -- are taking a closer look at the real-estate decisions imposed by their moves. The biggest question: Do you sell your existing home, or keep it, just in case?

For Brian Shell, the answer was simple: Keep the existing home.

In early 2002, Mr. Shell moved from Oklahoma to California to become director of business development at Redwood, Calif.-based Tumbleweed Communications Corp. The move led to a "role change" for Mr. Shell, who assumed more responsibilities in his new position.

But realizing the job situation in the high-tech field could change without notice, Mr. Shell decided to keep and rent his existing home in Oklahoma. "There's definite uncertainty in the marketplace," says Mr. Shell, who works for an Internet-software company. "Our company is public, but it's not profitable yet, so it didn't seem wise to pay the real-estate fees to sell the property when it could be transformed into an income-producing entity for us."

Besides, he and his spouse like Oklahoma, plan to retire there in their later years and want to have a home to fall back on. Keeping the house also gave them an investment alternative to the stock market. Real estate is a sector that's kept booming through the economic downturn, and the Shells decided to put more funds into it. "We thought it would be wise not to put all the eggs in the stock market -- with that environment being as it is," Mr. Shell says. "Instead, we decided to keep some of it in real estate."

Although buying a second home for the California move strained the bank account, he expects to recoup the loss from rental income, once the Oklahoma home is upgraded. "We'll have a new revenue stream, and we'll also be building equity in two homes," says Mr. Shell. "We didn't rent it out sooner because we wanted to put some money into improving its value."

Sometimes It's Better to Sell

Holding onto an existing home -- despite the temporary financial hardship it may have caused -- made sense for Mr. Shell. For other relocating executives, however, the idea of becoming a landlord overnight and struggling to pull together the down payment on a new home isn't a realistic option.

When Mark Shaw relocated from Kansas City, Mo., to Bridgewater, N.J., in February 2000, the real-estate decision was simple: Sell the house and buy a new one in New Jersey. Mr. Shaw relocated due to a merger that moved many Aventis Pharmaceuticals executives to the company's North American headquarters.

The company's new vice president of North American administrative services, Mr. Shaw says he and his wife "never envisioned owning two homes," especially one in the Midwest and another on the East Coast, where housing prices are higher.

The biggest challenge facing the Shaws was the significant contrast between the two states when it came to real-estate purchases. Mr. Shaw found the real-estate process "much more complex" in New Jersey, which includes a period for attorney review by both buyer and seller. "In Kansas, you can buy real estate subject to a couple of inspections, and you're good to go."

He continues, "Housing costs in the Midwest are very reasonable, and we needed to be able to take the equity out of the house in Kansas and apply that here. No one's going to get rich selling a house in the Midwest, but you can make money owning a house on either coast for a period of time, then selling it."

One Size Doesn't Fit All

Whether to sell or hold an existing home during a corporate relocation is an individual decision, which should be based on personal and family needs, your financial situation, and differences between the two real-estate markets.

Bill Sloan, an associate with RE/MAX Real Estate Services in Mission Viejo, Calif., who focuses primarily on helping executives relocate, says a market comparison is crucial to the "sell or hold" decision.

Consider, for instance, an executive in a high-cost area such as California, where the median home price is about $350,000 and a typical executive home is worth about $500,000. An executive asked to move to a less expensive area for, say, a two-year assignment would be wise to hang onto the West Coast home and rent it out, Mr. Sloan says.

A $500,000 home in an area where property values appreciate quickly could be worth $600,000 two years later. "At the same time, a $250,000 home in the Midwest might be worth just $275,000. The returning executive who sells instead of holding has lost $75,000 in equity," he says.

But if the situation were reversed, and the executive working in the field was relocating back to headquarters for a long-term move, then selling the existing home might make more sense. "If you can sell your existing home, take some profit on it and move forward, and if you're unlikely to return to that area, then selling would be the best move," Mr. Sloan says.

Often, relocating executives need profits from their previous home to make the down payment and cover costs at the new location, he says. Most executives prefer to be homeowners, and many company-sponsored moves cover closing costs, real-estate fees and moving expenses.

How Do You Make the Decision?

Most transferring executives sell their existing homes, mainly for financial reasons, says Aram Minnetian, president of Weichert Relocation Co. in Morris Plains, N.J. "Unless they can afford to retain those properties as second homes or vacation residences, most don't hang onto them because of the substantial nature of the real estate and the cost associated with maintaining investment property," says Mr. Minnetian. "What they typically do is sell their residences and purchase new homes in the new locations."

Whether the executive decides to sell or hold, Mr. Minnetian says the first step is to learn more about your destination's real-estate market, including the sale prices of homes and its community. "To help make the move easier during a time when you're concentrating on other things, find a real-estate agent in the target area who knows about the unique needs of relocating executives and who's familiar with company-relocation packages and what they [do] and don't cover, and who understands the time constraints of the typical corporate relocation," he says.

For example, Mr. Shell says Mr. Sloan's experience with executive relocations was helpful during his transition. "He showed me how to find an affordable home in California without having to sell my existing home for additional equity," says Mr. Shell. "The good advice we received from a good agent made all the difference."

Personal factors can't be ignored. A family may have particular needs, or the length of the assignment may be an issue. There may be pressure to complete the move quickly. And the executive's family needs to understand the type of community where they're moving.

"Is it a community or area where you want to be as long as possible, or are you moving out to the middle of the Mojave Desert where you want to leave as soon as possible?" Mr. Sloan asks. "Answering all of these questions ahead of time and factoring them into your decision will help you make the right choice."

-- Ms. McCrea is a free-lance business writer in Clearwater, Fla.

Email your comments to rjeditor@dowjones.com.