According to a new Realtor.com survey, some 92% of people who sold their home within the last year accepted some buyer-friendly terms, and approximately 41% accepted some contingencies in the contract. Additionally, among those surveyed, the number of buyers asking for repairs based on the inspection results more than doubled in recent months and the number of sellers refusing to make repairs dropped to zero. Whether it be financing, timing, repairs or flexibility, the art of negotiation is returning to the housing market.
This summer’s markets are confirming that the feverish pandemic conditions are moving in the rearview mirror. As mortgage rates jumped over 200 basis points in the last six months, the monthly mortgage payment for a median-priced home surged 60% higher. In turn, higher prices and borrowing costs have been cooling demand, as many first-time buyers hit an affordability ceiling, finding they were no longer able to qualify for a mortgage. This resulted in sales of new and existing homes dropping in the first half of the year in response to changing dynamics.
“Our survey shows that the overheated housing market of the past two years, which predominantly favored sellers, is beginning to regain a sense of normalcy, which is welcome news for home buyers,” said George Ratiu, Manager of Economic Research at Realtor.com. “The combination of higher mortgage rates and prices have noticeably cooled demand over the first half of the year. In addition, as more homeowners have been listing their properties, rising inventory is motivating more of them to resort to price cuts in order to successfully close transactions. At the same time, even as we are seeing a shift toward a more buyer-friendly market, it’s worth noting that the majority of recent sellers are still satisfied with the outcome of their home sale.”
Room for negotiation
Despite the extremely competitive housing market of the past several years, the survey suggests that negotiation is back on the table –for both price and contract terms. Homes that sold at- or above-asking price peaked at 82% in February and March of 2022 when mortgage rates were below 4%, and dropped to 69% for homes that sold within the last month when rates hovered near 6%. By contrast, the share of sellers who sold below-asking jumped from 18% in February and March 2022 to 31% for those sold within the last month.
All recent sellers —or 92%— that accepted some buyer-friendly terms include:
- Accepted some contingencies in the contract (appraisal, home inspection, home sale, financing, etc.) — 41%
- Dropped the price because the home didn’t meet appraisal — 32%
- Paid for some or all of the buyer’s closing costs — 32%
- Had to be flexible on the ideal timeline for closing — 30%
- Paid for repairs to the home after the appraisal — 29%
- Were not able to rent the home back after close despite asking to — 28%
Inspections and repairs make a comeback
A professional home inspection is always a good idea for homebuyers, but during the housing market’s peak, many buyers waived this important step in order to be competitive with their offer. Of those who sold within the last month, 95% reported that the buyer requested a home inspection, up from 82% of those who sold 6-12 months ago. More than twice as many buyers of homes that sold in the last month asked for repairs as a result of the home inspection —or 67%— compared to homes that sold 6-12 months ago at 31%. The number of surveyed sellers who refused to pay for any repairs during that time dropped from 8% to zero.
Nearly all respondents —95%— who sold their home in the last month made some updates or repairs to the property prior to listing, compared to 71% who sold 6-12 months ago. The average amount that recent sellers spent on repairs prior to listing was $14,163.
Not all bad news for sellers
Despite the shifting market, homes are continuing to sell quickly. In fact, 22% of people who sold within the past month said that their home went under contract in less than a week. This is up from 14% of people who sold 6-12 months ago. Additionally, 92% of people who sold their home in the past month were satisfied with the overall outcome of their home sale, down slightly from the 98% who were satisfied 6-12 months ago. An estimated 46% of sellers in the last month were satisfied with the price of their home sale, compared to 72% of those who sold 6-12 months ago.
Changing needs motivate sellers
After two years of the pandemic, sellers’ needs have changed, prompting a search for another home. Of those who sold within the last year:
- 31% were looking for different amenities/features
- 29% found that the home no longer met the needs of their families
- 26% needed a home office for remote work
- 23% wanted to live closer to family and friends
- 20% felt they bought their home in a hurry/panic and decided it was not the right home for them
- 17% no longer needed to live near an office
Affordability is a central challenge for this year’s markets
The market of the past year saw median list prices follow an upward trajectory toward new highs, culminating with June 2022’s record $450,000. Yet, even in a seller’s market, sale prices were spread across the spectrum. About a third of sellers had homes listed at or below $350,000, a factor that would comprise the entry-level of the market for many first-time buyers. Another 30% of sellers closed on homes priced in the mid-range of the market, the $350,000 – $750,000 price segment. Almost 1 in 4 homeowners who sold in the last 12 months, were in the trade-up range, $750,000 – $1.5 million. The remainder of sellers were concentrated in what is the luxury segment for most of the country, above $1.5 million.
When looking at the price distribution, the shifting market becomes more contoured across time. The last few months have seen mortgage rates surge toward 6% and, combined with high prices, they put a dent in affordability. Not surprisingly, the survey highlights a shift in prices toward the more affordable range. While sales prices above $1.5 million comprised 17% of sales 6-12 months ago, they accounted for only 6% in August 2022. Conversely, a higher concentration of sellers were successful at closing on more affordable homes over the last three months.
To read the full report, including more charts and methodology, click here.