Coming off years of bidding wars where potential buyers would waive all sorts of contingencies, today’s buyers are actually getting concessions from sellers. In fact, they’re getting them in record numbers.
A new Redfin report found a record share of sellers are giving buyers concessions including money for repairs and mortgage-rate buydowns. In the fourth quarter of 2022, 41.9% of home sales offered buyer concessions, the highest share in any three months, according to the report. That 41.9% was up from 30% in the third quarter of 2022 and the fourth quarter of 2021 and outpaced the previous high of 40.8% in the three months that ended July 2020.
The return of concessions comes as homebuyer demand has dampened due to rising mortgage rates, inflation and economic uncertainty, giving buyers in today’s market increased negotiating power. The pandemic had buyers waiving contingencies to win bidding wars when mortgage rates were at a record low from late 2020 through 2021.
Van Welborn, a Redfin real estate agent in Phoenix said today’s buyers are asking sellers for things that were unheard of during the past few years
“They’re feeling empowered, partly because their offer is often the only one, and partly because they know sellers have built up so much equity during the pandemic that they can afford to dole out sizable concessions,” Welborn said.
Not only were buyers getting contingencies in the last quarter of 2022, but the homes they were buying were coming at a discount. According to the report, a record 22% of homes sold during that time had both a concession and a sale price below the listing price. The report also found a record 19% had both a concession and listing price cut and a record 11% had all three.
The market with the biggest concessions was Phoenix where buyers in 62.9% of home sales received concessions. That’s up 33.2% from last year and is, according to the report, the largest increase of the 25 metros where data was available.
Seattle came in second with a 25.6% increase, followed by Las Vegas at 22.2%, San Diego at 20.7% and Detroit at 20.4%.
“It took a while, but seller expectations are coming back down to earth. Concessions were common before the pandemic, and we may be returning to that norm,” Welborn said. “Sellers realize they’re not going to get $80,000 over the asking price like their neighbor did last year.”
Concessions were less common in Austin, Texas, Philadelphia, New York and Chicago. They were most common in San Diego which gave buyers concessions in 73% of fourth-quarter home sales, the highest share among the metros Redfin analyzed, followed by Phoenix at 62.9%, Portland, Oregon, at 61.6%, Las Vegas at 61.3% and Denver at 58.4%.
New York had the lowest share of concessions giving concessions to buyers in only 13.4% of sales, followed by San Jose, California, at 14.4%, Boston at 17.5%, Philadelphia at 22% and Austin, Texas, at 33.3%.