BAM Key Details:
- A new Redfin report shows over 45% of sellers giving concessions to incentivize buyers, with a record 13% of sales involving both price cuts and concessions.
- Pandemic boomtowns, led by Seattle, have seen the biggest increases in seller concessions, which are most common in Las Vegas at 51.6% of home sales.
A new Redfin report shows a rise in seller concessions to offset higher mortgage rates. During the three months ending February 28th, over 45% of sellers provided incentives, with a record-breaking share of home sales involving both a concession and a price cut.
Sweetening the pot to entice cash-strapped buyers
Redfin agents record a seller concession any time a homeowner provides something to offset the buyer’s total cost of purchasing a home. For the purposes of Redfin’s report, reducing the list price of a home doesn’t count as a concession.
Concessions have become more common largely because rising mortgage rates and persistently high home prices have put homeownership out of reach for many would-be buyers. Cooling buyer demand has motivated sellers to sweeten the pot to attract those still determined to buy. Sellers are offering the following to incentivize these buyers:
- Money for needed repairs
- Money to cover closing costs
- Mortgage rate buy-downs
Compared to 2021, the market has seen a dramatic shift from buyers making sacrifices to secure a home purchase to sellers doing the same to attract a smaller pool of motivated buyers. The average 30-year fixed mortgage rate, now sitting at 6.55%, has increased the monthly mortgage payment on a typical home (with a median price of $327,514) by over $400.
Given that, it’s not all that surprising buyers are more demanding and selective—more so in some markets than others. Especially with signs indicating the fourth quarter will be the best time of the year for buyers, many are putting home purchases on hold, hoping mortgage rates will decline.
But for buyers who can’t afford to wait, if they can get some concessions to lower their overall cost—and even their monthly payment—why wouldn’t they? Concessions like these weren’t really an option during the pandemic home-buying frenzy when homes sold in 2-3 days.
In today’s market, buyers don’t want to take on any additional costs (like paving a cratered driveway or buying an oven with four working burners). Redfin agents have even seen sellers offer credits for new roofs to seal the deal. And more buyers are asking for credits to cover their closing costs or buy down their mortgage rates.
A record share of sales involved both concessions and price-cuts
Along with at least one concession, a record 25.2% of home purchases during the three months ending February 28 have included a final sale price below the list price.
A record 20.6% of home sales involved both a concession and a seller who lowered their listing price while their home was on the market. A record 13% involved all three: a drop in the listing price, a final sale price below that listing price, and a seller concession.
Concessions are most prevalent in Las Vegas
During those three months ending February 28, sellers in Las Vegas gave concessions to buyers in 77.4% of home sales—the highest percentage among the metros analyzed by Redfin.
Here are the top five metros where seller concessions were most common:
- Las Vegas, NV (77.4%)
- San Diego, CA (74.8%)
- Sacramento, CA (70.9%)
- Phoenix, AZ (63.7%)
- Denver, CO (60.9%)
Compare those to the top five metros with the lowest share of home sales involving seller concessions:
- New York, NY (16.7%)
- San Jose, CA (21%)
- Boston, MA (23.1%)
- Philadelphia, PA (30%)
- Austin, TX (33.9%)
Seattle sees the biggest increase in seller concessions
Pandemic boomtowns and pricey coastal markets have seen a faster cooling of buyer demand, thanks to rising interest rates, the higher cost of living, and the option of remote work.
During the three months ending February 28, sellers in Seattle gave concessions to buyers in 51.6% of home sales—up from 20.1% a year ago, making this the steepest percentage-point increase among the 22 metros with sufficient data.
Here’s the list of the top five metros with the biggest increase in seller concessions:
- Seattle, WA (51.6%)
- Las Vegas, NV (30.6%)
- Denver, CO (26.2%)
- San Diego, CA (23.3%)
- Phoenix, AZ (22.4%)
During the pandemic home buying frenzy, remote work and lower interest rates drove legions of homebuyers to warm and relatively affordable Sun Belt markets, including Phoenix and Las Vegas. But with higher rates and the higher cost of living putting a damper on buyer demand, sellers are now struggling to find buyers.
Only in two markets were seller concessions less common compared to a year ago: Austin, TX (-3%) and Chicago, IL (-2.1 ppts).
Top takeaways for real estate agents
Buyers and sellers alike in your local market could benefit from knowing this data:
- Sellers, so they can prepare themselves for the likelihood that a concession—and possibly also a price cut—will be necessary to close a home sale, at least in metros where concessions are most common
- Buyers, so they can take advantage of the opportunity afforded them in metros where concessions are more common—or to prepare for the possibility that concessions won’t be part of the deal (in areas where they’re less common)
Granted, even in the same market, some sellers will be faced with the need to give concessions while others, in different neighborhoods, won’t need to. Know the data for every neighborhood in your market so you can guide your clients reliably to the best possible outcome for them.