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ne year past relocation’s winter of discontent and we are all adjusting to the new normal or, as one executive told me, the “no normal.” The real estate markets continue to send varying signals. In some places, the dizzying ascent of values that raised debt and consumption has reversed its trajectory, leaving many with depreciation-induced nosebleeds. There has been no better time to expand our use of risk management tools and principles to manage our business. The appearance and spread of pre-decision tools, valuation products, and policy adaptations indicate the general buy-in of the notion that change is essential. But we can all benefit from broader and deeper use of risk management to deal with the present, and to create a sounder footing for the future. Each of the types of risk in the chart labeled “Real Estate Risk” (see page 48) has a solution, even if applied ad hoc. But the broader question is how to incorporate all of the salient factors that contribute to the risk picture into a better risk management and assessment program for homesale.
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breadth. One can break down each market and apply key data and market factors to normalize data and optimize a value result. In addition to a quantitative algorithm, someone needs to do the thinking that underpins real analysis. Numbers and formulas are great, but judgment is crucial. Industries such as insurance and banking have long taken a risk management approach to their businesses. They use tools and follow a process to assess risk based on continuously tested principles measure factors that affect results. Most of all, they install and maintain a company culture that regards risk management as essential to success. There is no doubt many mobility professionals have taken similar steps. Risk management begins early, perhaps even prior to client implementation. The sales process should uncover information that will allow a rigorous evaluation of the potential client for the third-party company. Items such as prior year’s loss results, locations of likely departure and destination cities, and policy factors relative to time on market all are crucial data elements to be gathered and analyzed.
Risk Management
Valuation in Departure and Destination Markets
Risk management is the application of tools and data with the most predictive and diagnostic qualities to a subject (such as home value) to quantify or account for risk. Loss on sale may be the primary concern. Frequently, it is for the purpose of setting a price for a risk to be undertaken and to identify practices that reduce the frequency and severity of loss. Risk management has been used formally at least since Lloyds of London first invited men of means in 1688 to underwrite cargo bound for places far and wide. The risk assessment made then was based more on the ship and its captain than a regression analysis. Today, we have data and analytical tools and computers to fine-tune the process and result. The chart on page 49 illustrates the challenges presented by real estate markets during the past three years. It also clearly illustrates the point that some markets have been on a far bumpier ride than others. Yet, this downturn is unprecedented only in its degree and
Prior to a decision to accept a new position, transferees and employers need to understand what they are facing in departure and destination markets. To satisfy the impairment issue, an inspection of the property should reveal any deficiencies. In addition, a Comprehensive Loss Underwriting Exchange (CLUE) report will reveal loss history and identify any claims paid for repairs that have not actually occurred. The inspection and CLUE reports also will identify any property deficiencies that impede the sale of the home, or that disqualify the home for mortgage financing. In a world where one in four homes is worth less than debt outstanding, the negative equity position of the employee needs to be established. A realistic home value needs to be set to complete the assessment, properly set expectations, and evaluate the financial risk to all parties of the prospective move. MOBILITY/MAY 2010 47