Slowing Market Boosts Negotiating Power

According to a new report from Redfin, roughly 63,000 people cancelled their home-purchase agreements in July 2022, roughly equal to 16.1% of homes that went under contract that month. With the exception of the first two months of the pandemic, that’s the highest percentage on record. 

For comparison, that number was 15% in June 2022 and 12.5% year-over-year. 

This has been caused by higher mortgage rates and declining competition as more-and-more buyers are being priced out of the market. This has resulted in newfound buying power that has allowed buyers to walk away, using contract contingencies that allow them to back out because sellers refuse to bring the price down or make requested repairs. 

“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate. They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better,” said Heather Kruayai, a Redfin real estate agent in Jacksonville, FL. “Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop. They don’t want to end up in a situation where they purchase a home and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower.” 

Alexis Malin, another Redfin agent in Jacksonville, warns that there’s no guarantee buyers will be able to find better deals in the future. Annual home-price growth has started to slow—to 8% today from 17% a year ago—but prices are still on the rise and Redfin economists don’t expect them to crash. 

“Some buyers who are backing out of deals have this mindset that the market is crashing and they’ll be able to get a home for $100,000 less in six months. That’s not necessarily the case,” she said. “Homes in many parts of Florida are still selling for a pretty penny, so I warn my buyers that the grass might not actually be greener on the other side.” 

Redfin noted that buyers may also be backing out due to the rising cost to borrow money, as they started searching for a home when the rate was 3% and cannot afford the additional cost as mortgage payments have soared over about 40% in the last year 

Click here to read the original report and what cities had the highest amount of cancellations.