Seller concessions hit a record in February, with 45.6% of home sales transacted during the three months ending February 30 involving seller concessions. April’s number is just a bit below that at 42.9%.
That’s according to a new report from Redfin, which highlighted the difference between the 6% drop in the likelihood of a seller giving concessions in April, compared to February, and the 18% spring drop for the previous two years.
Spring typically brings a steeper drop in seller concessions as more buyers enter the market. But the combination of high mortgage rates and high home prices have kept many buyers on the sidelines this year, making it necessary for sellers in some parts of the country to offer freebies or even reduce their asking price—especially if they need to move.
And sellers who are moving, by necessity, are more likely to move outside their current metro than to stay within it—because, in many cases, the reason for the move requires relocating to a different part of the country (a new job, caring for relatives, etc.).
But even in these markets, when moving has to happen, sellers are willing to make the concessions necessary to sell quickly. And moving to a more affordable area becomes all the more attractive (if that’s an option).
In other markets, inventory is so low that sellers have the upper hand. And overall, 46% of the home offers written by Redfin agents faced competition in April—compared to 59% one year ago.
TOP THREE REASONS WHY SELLERS ARE OFFERING CONCESSIONS
Sellers this spring are offering buyers concessions more frequently than last year for a number of reasons—the following three being the most evident:
1. Buyers are stepping back from the market in reaction to mortgage rates climbing to 7% and beyond, driving up the cost of homeownership—even with the 4% overall drop in home prices. The severe shortage of housing supply is also discouraging buyers.
2. For sellers who need to sell, concessions are a must in some markets. Many of those listing their homes are doing so because they need to move—whether because of a divorce, a new job in a different area, or the need for a larger home. Driven by the need to sell quickly, these sellers are more likely to offer concessions to buyers.
3. Homebuilders are offering freebies to entice buyers. During the pandemic, builders worked to capitalize on the moving frenzy—especially in pandemic hotspots. Now that demand has cooled, builders are motivated to unload their backlog inventory and are wooing buyers with money toward closing costs, gift cards, and even free cars.
Buyers don’t have the advantage in every market, though. In some, inventory is so low that homebuyers can expect competition for available homes—especially the more affordable ones.
High mortgage rates and low supply have thrown the housing market out of whack, and each deal is different. Some buyers are asking sellers for the sun, the moon and the stars in addition to offering below the asking price, and some are requesting no extras because they’re so motivated to secure one of the few homes on the market. The one consistency in the market right now is homebuilders handing out freebies. Most builders are offering concessions equal to about 3% of the sale price, which gets credited to buyers at closing, to offload properties...
Posted by:
Sarah Lentz
May 31, 2023
