Concessions are back: Sellers willing to negotiate, lower prices
As a sign of shifting market dynamics, Redfin reported a record number of seller concessions in the fourth quarter.
- Phoenix, San Diego and Las Vegas among the areas where sellers are most likely to give concessions.
- Helping pay for closing costs or repairs are common types of concessions.
- Some cities saw fewer concessions year-over-year, with Austin topping the list.
Now that the Wild West days of frenzied, multiple-offers-over-listing have passed, sellers are having to accept a bit more horse trading to close a deal.
Redfin found home sellers gave concessions to buyers in 41.9% of transactions during the fourth quarter, a record share for any three-month period since Redfin began tracking this quarterly data in 2020.
Given the rapid change in market dynamics, the findings aren't too surprising. Many potential sellers are seeing their listings sit longer because buyers simply can't afford the mortgage payment in this high-interest rate, high-priced environment — or they're leveraging their deal-making power.
"Buyers are asking sellers for things that were unheard of during the past few years," said Van Welborn, a Redfin real estate agent in Phoenix, in the news release about the report. "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."
Sellers, accustomed to having the advantage — and reluctant to trade in their locked-in low rates for higher ones — hadn't been eager to lower their prices, but that may be changing. According to the Redfin report, which focuses on transactions done by its agents, a record 22% of homes sold in the fourth quarter included both a concession and a sale price below the original list price.
Since closing costs typically represent between 3-6% of the overall purchase price of a home, they tend to be ripe for negotiation, followed by repairs.
"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." Helping set clear expectations with clients will likely result in a smoother transaction, even if sellers need some convincing to understand the new normal of the market.
Phoenix, West Coast cities among the top areas for concessions
Phoenix experienced a superheated market during the pandemic, and the quick cooldown resulted in a large rise in inventory. As a result, the metro saw the biggest jump in concessions during the fourth quarter — nearly 63%, up from 33.2% compared to a year earlier. Other cities with big year-over-year jumps of 20% or more included Seattle, Las Vegas, San Diego and Detroit.
San Diego also had the highest overall percentage of concessions, with nearly three-fourths of buyers getting a concession. Next came Phoenix (62.9%); Portland, Oregon (61.6%); Las Vegas (61.3%); and Denver (58.4%).
Areas that appear to have become more favorable to sellers in the fourth quarter include Austin, Philadelphia, New York and Chicago. Sellers in those cities experienced fewer concessions compared to Q4 of the previous year, according to the Redfin report.