Homesellers gave concessions to buyers in 42.9 percent of U.S. home sales during the three months ending April 30, up from 25.5 percent a year earlier, according to a new report from Redfin.
That’s just shy of the 45.6 percent record-high hit in February.
The share of homesellers providing concessions—which include things like money toward repairs, closing costs and mortgage-rate buydowns—has inched down from February’s peak due to typical seasonality. Concessions become less common in the early spring because that’s when more buyers typically enter the market, increasing competition and giving sellers more power. But this spring, concessions posted a smaller decline than the last two years because high mortgage rates have made it so sellers in cool markets need to take extra measures to woo and secure buyers, Redfin stated.
The likelihood of a seller giving a concession dropped 6 percent from February to April, compared with 18 percent drops during the same period in 2021 and 2022. This spring’s smaller drop corresponds with less homebuyer competition, with 46 percent of offers written by Redfin agents facing a bidding war in April, down from 59 percent a year earlier.
Redfin said sellers are throwing in freebies to woo buyers 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 percent 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.
While buyers have the upper hand in some markets, that’s not the case everywhere. In some areas, there are so few homes for sale that homebuyers are encountering competition. And when buyers are involved in a bidding war, they typically won’t win if they ask for concessions like mortgage-rate buydowns or help with closing costs.
“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,” Boise, Idaho, Redfin agent Shauna Pendleton said in a release. “The one consistency in the market right now is homebuilders handing out freebies. Most builders are offering concessions equal to about 3 percent 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.”
Just over one in seven (15.7 percent) homesellers dropped their asking price in addition to providing a concession to the eventual buyer during the three months ending April 30. That’s nearly four times the share of a year earlier (4.2 percent), according to Redfin.
Roughly one in five (20.5 percent) 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 percent a year earlier. And about one in 10 (9.4 percent) 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 percent a year earlier.
Those shares have all inched down from record highs set in February, which is typical for this time of year, and 2023’s declines are actually smaller than the declines in 2021 and 2022, Redfin added.