(Drafted by ERC’s Law and Government Relations Committee)
Prepared by Worldwide ERC® Tax Counsel, Peter K. Scott
Peter K. Scott Associates
November 2000
Buyer Value Option
A buyer value option transaction is a variation of the amended value transaction in which no appraisals are obtained and usually no initial offer is made to the employee. Although these transactions are sometimes referred to as "amend-from-zero" or "offers prior to appraisal," there is no initial appraised value offer to "amend." Rather, the only unconditional offer is made at the "buyer value," that is, the fair market value as determined by an offer from a potential buyer.
The procedures generally are as follows: After PURCHASER is notified that the employee is to be relocated, PURCHASER contacts the employee, explains the buyer value option, and offers home marketing, broker selection, or other assistance available under the relocation program. The EMPLOYEE proceeds to market the home, seeking a POTENTIAL BUYER.
As in the appraised value and amended value transactions, the EMPLOYEE may choose to enter into a listing agreement with a real estate broker that he or she selects, in which case the EMPLOYEE must include in the listing agreement a provision to the effect that the broker will earn no commission if the employee sells the home to the purchaser ("exclusion clause"). If a potential buyer is found, the purchaser verifies that the potential buyer’s written offer is bona fide. If the purchaser determines the offer is bona fide, the purchaser makes an offer to buy the home from the employee for an amount equivalent to the price offered by the potential buyer. This involves making any necessary adjustments to reflect the differences between the offer from the potential buyer and the offer from the purchaser so that the two offers may be compared on an all-cash basis. This comparison of terms is for the benefit of the employer and assures the reasonableness of the marketplace offers. For example, if the employee offered to pay the buyer’s points in exchange for a higher purchase offer, then an adjustment would be made to make the offers comparable on an all-cash basis. This offer from the purchaser at the buyer value is unconditional and is not contingent on any event.
Thereafter, the procedures are as described in the amended value option.