A new Redfin report found a record 41.9% of home sellers gave concessions to homebuyers in Q4 of 2022, through money for repairs and mortgage-rate buydowns. This represents the highest increase of any three-month period since July 2020 when Redfin started tracking this data. In Q3 of 2022 and Q4 of 2021, sellers gave concessions in 30% of home sales.
The report also found that homeowners are selling homes for below the asking price. In Q4 of 2022, 22% of Redfin’s home sales included a concession and lower listing price, while 19% included both a concession and a listing-price cut while the home was on the market.
With the rise in mortgage rates and inflation, concessions regained popularity, reducing the overall cost for homebuyers through money toward repairs, closing costs and mortgage-rate buydowns.
When the 30-year mortgage rate was around 3%, there was a higher demand for homes and such deals were not as popular. During the pandemic, record-low mortgage rates invited more demand and led buyers to outbid the asking price and waive concessions to “have their offers taken seriously,” according to the Redfin report.
Today, mortgage companies are promoting more buydowns. In September 2022, Rocket Mortgage and its wholesale arm Rocket Pro TPO, started offering a one-year buydown, dubbed the “Inflation Buster.” It aimed to reduce a homebuyers’ monthly mortgage payments by a percentage point for the first year of their loan.
United Wholesale Mortgage also expanded temporary buydown options for jumbo loans in December to attract more business. The options include reducing mortgage rates by 2% during the first year of the loan and by 1% in the second year, or by 1% during the first year.
“Buyers are asking sellers for things that were unheard of during the past few years,” said Van Welborn, a Phoenix-based Redfin real estate agent, in a prepared statement. “They’re feeling empowered, partly because their offer is often the only one, and partly because they know sellers have built up so much equity during the pandemic that they can afford to dole out sizable concessions.”
Recently, one of Welborn’s buyers negotiated a $10,000 credit for a new roof and other repairs along with a lower asking price for the home. He has seen this amount go up to $25,000, and a 2-1 mortgage-rate buydown with warranties on household appliances.
Welborn also says we are heading back to pre-pandemic levels of giving concessions. “Sellers realize they’re not going to get $80,000 over the asking price like their neighbor did last year,” he added.
Pandemic boomtowns see a rise in concessions
Concessions are the most popular in the San Diego housing market, with sellers giving concessions to buyers in 73% of home sales. Phoenix (62.9%), Portland (61.6%), Las Vegas (61.3%) and Denver (58.4%) followed.
The increase in concessions over the same period last year was most acute in Phoenix, which was up 33%. Seattle, Las Vegas, San Diego and Detroit all saw the number of concessions rise more than 20% over last year.
Phoenix and Las Vegas in particular were popular destinations during the COVID-19 pandemic and are among the “fastest cooling markets,” per the report. These areas saw a surge in migration as remote workers looked to relocate to affordable and warm areas.
The lowest concession rate of 13.4% was recorded in New York, followed by San Jose (14.4%), Boston (17.5%), Philadelphia (22%) and Austin (33.3%).
Some metros saw a decline in concessions. The rate in Austin decreased from 38.1% in 2021, followed by Philadelphia, New York and Chicago, which were all down 2% or less.