Concessions are becoming more popular among home sellers during the three months preceding April 30, 2023 as sellers are handing out freebies to 42.9% of homebuyers. This number is up from 25.5% a year ago, but down 2.7% from February when a record 45.6% of buyers got some sort of concession.
According to a new report [1] from Redfin [2], the share of home sellers providing concessions—which are likely in the form of cash or discounts to offset repairs closing costs, and mortgage-rate buydowns—has dropped mainly due to seasonality. Concessions become less common in the early spring beceasue that’s when more buyers typically enter the market, which in turn gives sellers more power.
However, this year, concessions are up over the last two years because high mortgage rates have made it so sellers in cooling markets need to take extra measures to entice buyers. The likelihood of a seller giving a concession dropped 6% from February to April, compared with 18% drops during the same period in 2021 and 2022. This spring’s smaller drop corresponds with less homebuyer competition, with 46% of offers written by Redfin agents facing a bidding war in April, down from 59% a year earlier.
Redfin says sellers are throwing in freebies to secure a buyer at a higher frequency than last year for several reasons:
- Buyers backing out of the market. Many house hunters have put their buying plans on hold because rising mortgage rates have made homeownership more expensive. And while home prices have fallen 4% from a year ago, that’s not enough to offset the cost of higher rates, with monthly mortgage payments at a record high. Another factor dampening demand is the lack of supply, with fewer people listing their homes for sale as they hold onto comparatively low mortgage rates.
- Sellers who need to sell. Many people who are listing their homes are moving because they need to; maybe they got a divorce or secured a new job in a different state. Those sellers may be willing to provide concessions because they need to sell their home quickly.
- Homebuilders offering freebies to attract buyers. There was a surge in homebuilding during the pandemic as builders tried to capitalize on the moving frenzy, especially in pandemic homebuying hotspots. Now that rising rates have pushed many buyers out of the market, builders are trying to sell off their backlog of inventory by offering perks like money toward the buyer’s closing costs, gift cards and even free cars.
Yet, buyers still have the upper hand in some markets which remain hot; low inventory rates in some areas are also another reason concessions are not on the table for buyers due to increased competition and bidding wars.
“High mortgage rates and low supply have thrown the housing market out of whack, and each deal is different. Some buyers are asking sellers for the sun, the moon and the stars in addition to offering below the asking price, and some are requesting no extras because they’re so motivated to secure one of the few homes on the market,” said Boise, Idaho Redfin agent Shauna Pendleton [3]. “The one consistency in the market right now is homebuilders handing out freebies. Most builders are offering concessions equal to about 3% of the sale price, which gets credited to buyers at closing, to offload properties. Buyers are using the extra cash to cover closing costs or buy down their mortgage rate.”
Some sellers are also asking less money for their home in addition to concessions as research found that 15.7%, or one-in-seven homes, dropped their asking price in addition to providiing a concession to the eventual buyer during the three months prior to April 30. That number is four times the share of a year earlier.
Roughly one in five (20.5%) of homes that sold during the period had a final sale price below the asking price in addition to a concession, up from about 7% a year earlier. And about one in 10 (9.4%) had all three: A concession, a price drop and a final sale price below the original list price. That’s up from just 2.2% a year earlier.
Sellers gave up the most in pandemic-era boomtowns; Tampa, Florida reported a bigger year-over-year in seller concessions than in any other metropolitan area. The next-biggest increases were in Nashville, TN (49%, up from 5.6%), Salt Lake City (46.8%, up from 12.3%), Seattle (45.7%, up from 11.7%) and Raleigh, NC (64.6%, up from 31.2%). The share of sellers giving out concessions rose over the last year in all metros Redfin analyzed.
Click here [4] to see the report in its entirety, including charts and a metro-level summary of concession rates.