Home Purchase Programs Definitions: Appraised Value Transactions 

Drafted by ERC's Law and Government Relations Committee

Prepared by Worldwide ERC® Tax Counsel, Peter K. Scott
Peter Scott Associates
November 2000

Appraised Value Transactions

Pursuant to an agreement between an employer (the "employer") and a relocation company (Or the employer itself in the case of a company's own home purchase plan.) ("PURCHASER"), PURCHASER is advised that an employee is to be relocated. PURCHASER then contacts the employee ("EMPLOYEE") and, if EMPLOYEE consents, typically orders two independent appraisals of EMPLOYEE's home to obtain an estimate of its fair market value. The appraisals are prepared by independent professional appraisers who are generally selected from a list prepared by PURCHASER. In some cases, EMPLOYEE may select one or more appraisers not on the list, provided they meet certain qualifications. If the values in the appraisals are within a stated range (usually 5 percent of the higher), the average of the two is taken and that average becomes the "appraised value." If the variance between the appraisals is greater than the permitted spread, a third appraisal is obtained and the appraised value is determined, depending on the program, by averaging the closest appraisals, the two highest appraisals or all three appraisals. Typically, a review process is conducted to assure that the appraisals were competently prepared and are complete.

Once an appraised value is determined, PURCHASER offers to buy the home for this price. (In some programs, the contract of sale is signed by PURCHASER before it is sent to EMPLOYEE; EMPLOYEE's signature is then the second signature. In other programs, EMPLOYEE is the first to sign this document). The offer is made in the form of a proposed contract of sale between PURCHASER and EMPLOYEE ("Contract of Sale"). If EMPLOYEE desires to sell to PURCHASER, he/she can accept the appraised value as the fair market value of the home.

Depending upon the employer's relocation program, EMPLOYEE will have a period of time (usually between 30 and 90 days) from the date of mailing to him/her of the Contract of Sale to elect to accept PURCHASER's offer at the appraised value. EMPLOYEE exercises this election by executing the Contract of Sale and returning it and other documents to PURCHASER. Upon receipt of the Contract of Sale which EMPLOYEE has executed, PURCHASER signs it and pays EMPLOYEE a portion or all of EMPLOYEE's equity in his/her home, depending upon the employer's relocation program. When EMPLOYEE vacates the home, the balance, if any, of EMPLOYEE's equity is paid. Pursuant to the terms of the Contract of Sale, PURCHASER is the sole beneficial owner of the home and bears all of the burdens of ownership including the responsibility for all expenses related to maintaining and disposing of the home.

The foregoing is intended as general information only. Regarding your specific situation, Worldwide ERC® suggests that you consult with your own tax or legal advisor as appropriate.

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