For the first time in over two years, homebuyer negotiating power is on the rise.
In July, the percentage of home purchase agreements that fell through rose to 16.1%—the highest rate on record outside of March and April 2020, according to a Redfin report.
One thing is certain as home purchase cancellations continue to increase: buyers are no longer willing to hand over everything in hopes of winning a bidding war.
Home Purchase Agreements that Fell Through in July 2022
Redfin’s report shows that the number of buyers willing to walk away from a deal has once again risen. In July 2021, 12.5% of purchase agreements were canceled. That percentage rose to 15% in June 2022, and increased again to 16.1% in July 2022.
Highest rate of home purchase cancellations
Redfin analyzed 93 metros, each of which had a minimum of 1,000 pending sales. Here are the ten metros with the highest home purchase cancellations in July:
- Jacksonville, FL – 29.3%
- Las Vegas, NV – 27.4%
- Lakeland, FL – 26.2%
- New Orleans, LA – 25.9%
- San Antonio, TX – 25%
- Orlando, FL – 24.5%
- Palm Bay, FL – 24.5%
- Deltona, FL – 24%
- Atlanta, GA – 23.7%
- Pensacola, FL – 23.6%
Six of the top ten metros are in Florida, which also experienced some of the greatest growth and highest increases in home prices over the past two years.
Now, competition in Florida, like most markets, is slowing. And sellers who are unwilling to negotiate are seeing buyers cancel deals.
Buyer Negotiating Power
As mortgage rates and affordability issues create a decrease in competition, buyers have more options in today’s market. Gone are the days of waiving contingencies and looking the other way when inspection reports come back with an issue.
More buyers are asking for repairs, concessions, and contingencies. And if they cannot get what they want, buyers are willing to step away from the deal.
Under contract contingencies typically allow for buyers to back out without financial penalty. Here are some of the reasons buyers are backing out of agreements, according to Redfin agents:
- Sellers refuse to bring the price down or make repairs. As sellers are still adjusting to this new market, some are unwilling to offer buyers anything if an appraisal comes in low or an inspection report shows needed repairs. But unlike the past two years, buyers will walk away if needs aren’t met.
- Fear of a market crash. There are plenty of buyers who think there will be a dramatic drop in home values in the next six months. While annual home-price growth has slowed—from 17% a year ago to 8% today—economists don’t expect home values to crash.
- Rising mortgage rates. Buyers who started their home search when rates were closer to 3% can no longer afford the homes they were looking at last year.
As consumers adjust to the current market and sellers grow accustomed to negotiating again, the number of agreements that fall through may decrease.
Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market. Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.
