BAM Key Details:
- In a record 42% of home sales in Q4 2022, buyers received concessions from sellers—up from 31% in Q4 2021
- Concessions included money for repairs and mortgage-rate buydowns
A new Redfin report highlights a new record for the share of home purchases involving concessions from sellers. In the fourth quarter of 2022, 42% of buyers received concessions from sellers—like money for repairs or mortgage-rate buy-downs.
That percentage is up from 31% a year earlier. And it’s the highest share of any three-month period in Redfin’s records. It exceeded the 40.8% from the three months ending July 2020, when the housing market slowed dramatically at the outset of the pandemic.
What is or is not a concession?
When a seller offers concessions to a buyer, it can include any of the following:
- Money toward repairs
- Closing costs
- Mortgage-rate buy-downs
What it doesn’t include is a reduction in the home’s listing price. The point of a concession is to help reduce the total cost of purchasing the home.
Concessions have become more prevalent with the decline in homebuyer demand, thanks to rising mortgage rates, inflation, and overall economic uncertainty. Buyers are taking more time to consider their options and are far less likely to waive an inspection or buy without trying to negotiate something to sweeten the pot.
That increase in negotiating power also makes it imperative for buyer agents to sharpen their negotiating skills.
It’s a sharp change from the pandemic buying frenzy of late 2020 and 2021 when fierce competition for homes meant buyers often had to bid over the asking price and waive all contingencies to have a shot at buying the home they wanted.
As the housing market slows, more homeowners are selling below their desired price just to entice buyers. A record 22% of home purchases recorded by Redfin buyer agents in Q4 2022 included both a concession and a sale price below the original listing price.
A record 19% included both a concession and a listing-price reduction that happened while the home was on the market. A record 11% involved a concession, a price cut, and a final sale price below asking.
Phoenix saw the biggest increase in concessions
Phoenix and Las Vegas are two of the fastest cooling markets, after months of soaring in popularity during the pandemic buying frenzy. But while the warmer weather is still a draw, the sharp rise in housing prices is now the biggest driver in seller concessions and price drops.
Phoenix saw the biggest surge in concessions, with sellers giving them in 62.9% of recorded home purchases in Q4 2022—up from 33.2% in Q4 2021.
That 29.7% increase is the largest among the 25 metro areas analyzed by Redfin. Here’s the full list:
- Phoenix: +29.7%
- Seattle: +25.6%
- Las Vegas: +22.2%
- San Diego: +20.7%
- Detroit: +20.4%
Concessions were common enough before the pandemic hit, and it looks like we’re returning to that norm. Today’s market has tempered seller expectations; far fewer now expect to get $80K over the asking price like their neighbor did a year ago.
Sellers now are offering credits of as much as $25K to cover needed repairs and closing costs. Some are even offering to pay for 2-to-1 mortgage-rate buy-downs and warranties on major household appliances.
At the other end of the spectrum, concessions were less common in four metros compared to a year ago. In Austin, TX, sellers offered concessions in 33.3% of home sales, down from 38.1% a year ago (-4.8%). Here’s the full list:
- Austin, TX: -4.8%
- Philadelphia: -2.7%
- New York: -2.4%
- Chicago: -1.6%
Concessions are most prevalent in San Diego
With 73% of its home sales involving concessions for buyers in Q4 2022, San Diego had the highest share of all the metros in Redfin’s analysis. San Diego also had the highest share in Q4 2021.
The top five metros with the highest share of sales involving concessions:
- San Diego: 73%
- Phoenix: 62.9%
- Portland, OR: 61.6%
- Las Vegas: 61.3%
- Denver: 58.4%
The lowest share goes to New York, with sellers giving concessions in only 13.4% of home sales, according to Redfin’s data.
The five metros with the lowest share of sales involving concessions:
- New York: 13.4%
- San Jose, CA: 14.4%
- Boston: 17.5%
- Philadelphia: 22%
- Austin: 33.3%
Top takeaways for real estate agents
If you’re serving an area with a higher-than-average share of home sales involving concessions, get familiar with the concessions you can negotiate for your buyer clients. As for your seller clients, look for ways to get them as much value for their home as possible while also respecting the legitimate interests of the buyer.
If you serve an area with a lower-than-average incidence of concessions for buyers, you can still familiarize yourself with your client’s options. Whatever area you serve, make it a priority to hone your negotiating skills and your knowledge of what’s happening in your local market.
Your clients have a reasonable expectation that you, as a real estate professional, know all the available data and resources and every effective strategy to get them the best value possible.