The housing market is finally tipping in favor of buyers, and that means they can walk away with more than just a decent deal on a home.
Around 42% of homes sold in the final three months of 2022 included some kind of concession from the seller, Redfin data found, up from just 30% the previous quarter. Those incentives included mortgage rate-buy downs, cash for closing costs and repairs, and warranties on household appliances. A separate study found that 13.6% of sellers also slashed their listing price to attract buyers.
For homebuyers, the uptick in concessions means the days of waiving contingencies and inspections are behind them and they’ll have more bargaining power when purchasing a home. But buyers should act fast, one expert said, as a potential increase in competition may dissuade sellers from negotiating in the long term.
“Everyone has different motivations and goals. Every market is different, but deals are to be had now,” Monte Miner, real estate agent at Ironwood Fine Properties, told Yahoo Finance.
Here’s what to ask for.
More protection
The days of waiving contingencies such as appraisals and forgoing inspections are fading into the rearview mirror. Still, contract activity remains slightly competitive depending on your location.
At least 24% of buyers waived the inspection contingency in December 2022, according to the National Association of Realtors confidence survey, up from 16% a month prior and 19% one year ago. An additional 24% of buyers waived an appraisal contingency in December, up slightly from 16% in November and 21% a year ago.
Home inspection contingencies are particularly important because it can let you know if there’s a deal-breaking issue with the property before a purchase occurs. It can also help you negotiate repairs with the seller, which is becoming increasingly common in today’s market.
“If buyers have this short window to buy where they can get incentives to purchase, [they] would rather buy where they have an opportunity to really think about it, get an inspection, a financing contingency and not feel rushed,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance.
Mortgage help
When mortgage rates increased at their fastest clip in over 50 years last year, plenty of homebuyers still in the market opted for a mortgage rate buy-down to ease the financial burden on their home loan.
A buydown is often a strategic option some borrowers use to lower their interest rate by paying discount points at closing. Discount points, or mortgage points, are only paid once at closing and can reduce your interest rate for the life of your loan.
“When the rate was up in the high 7s, we were seeing a 2-1 buydown being asked for a lot,” Miner said. “When that happens, the buyer is hoping to refinance in the next two years in most cases. With rates [in 2023] potentially under 6%, I see that as a possible yet less likely scenario.”
Under some circumstances, a seller may even offer to pay points to offer a temporary rate buydown – only applicable for the first few months of your loan. This can make your mortgage payments more affordable in the beginning of your loan.
Reduce your closing costs
One of the big expenses buyer face when purchasing a home is paying off the closing costs. These fees can include charges for appraisers, home inspectors, real estate agents, attorneys and your lender to name a few.
According to Realtor.com, the closing costs on a home purchase often total 2% to 7% of the home’s purchase price. That means a buyer that purchased a home at the average listed price of $400,000 in December, may have faced a closing fee between $8,000 and $28,000.
Although home sellers and buyers generally split the costs of closing services and fees, these days sellers are more likely to offer to pay more or all of the closing costs to make a sale.
“One of the factors that made buyers pause last year was them saying ‘I don’t have enough money for closing costs,’” John Downs, senior vice president at Vellum Mortgage, told Yahoo Finance. “Well, actually sellers are now paying it for you.”
Ask for a price reduction
Home prices are finally falling from their peaks, and on top of that – a growing number of sellers are also offering additional price cuts to attract buyers.
The median listing price jumped from $369,000 in January 2022 to $449,000 in June – an increase of 21%, Realtor.com data found. As of December, the average listing home price had softened to $400,000, still about 8.4% higher than a year earlier.
At current rates at 6.33%, some homebuyers are still facing affordability hurdles. The cost of financing 80% of a typical home remains 58.9% higher compared to a year ago, Realtor.com found, leaving some buyers stuck on the sidelines.
Fortunately, price reductions are becoming more and more common – and asking for a price cut isn’t frowned upon. In fact, some agents are encouraging it.
“Instead of waiting for listing prices to drop, buyers are actually submitting offers with big discounts and making the seller make a decision and that seems to be working,” Downs said, noting that there’s been an uptick in price reductions in the Washington, DC area.
For instance, the percentage of homes with a price reduction increased to 13.6% in December, from 7.1% a year earlier. According to Realtor.com that percentage was higher than it was before the pandemic, but lower than the percentage seen in 2018 (14.8%).
Downs added, “Buyers are setting the tone of the housing market this year, and sellers are listening.”
Act fast
Homebuyers who may want to capitalize on their chances to negotiate, should act quickly before the spring selling season kicks off.
According to Redfin, the uptick in purchasing activity during the weeks leading up to Jan. 15 drove the median U.S. home-sale price up 0.9% from a year earlier to $350,250 – the biggest increase in a month.
The volume of mortgage applications to purchase rose 25% in the week ending Jan. 13, the Mortgage Bankers Association found. While that is still off 35% from year-ago activity levels, it’s likely that the pool of buyers will continue to grow as rates decline.
“I have a property listed at $375,000 and we already have 20 offers. Two of them are full price, one is above price,” Miner said. “At that point, buyers are not going to have a chance to get any concessions on that property.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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Source: finance.yahoo.com