Buyers May Have More Power Than They Realize Right Now—Here’s Why
Doom and gloom might be dominating real estate headlines these days, and many would-be homebuyers are feeling hopeless about their chances of getting a good deal in the wake of mortgage rate hikes, low housing inventory, and elevated home prices.
There’s no denying that the cost of buying a house has risen, but if you dig into the data, you’ll find that many homebuyers might actually be in the driver’s seat right now.
In October, home prices continued to drop from the record-high prices we saw in the summer, according to a recent report from Realtor.com®. Plus, the number of houses on the market is up nationally 33.5% year over year, according to our data. Houses are lingering on the market, too, for 51 days on average—which is 6 more days than last year. That shift means that sellers are more likely to price homes competitively.
Simply put, all of this adds up to a power shift in real estate. A year ago, sellers were calling all the shots and buyers were launching legendary bidding wars, waiving contingencies, and paying for homes in cash. But now, the shoe is on the other foot, and 92% of home sellers are accepting some buyer-friendly terms (frequently related to home inspections, financing, or appraisals), according to a Realtor.com survey.
So if you’re currently in the market for a home, here are the biggest silver linings to consider.
Home showings are down, giving buyers more power
Fewer showings mean less chaos and a saner approach to homebuying.
“For the past year, every house I put up would have an offer over the listing price within the hour,” recalls Ami DiPierro, a real estate agent with Choice Residential Real Estate in Raleigh, NC. “It was very frustrating to see a home that matched your buyer and call the agent to see when showings would begin, and learn they were about to accept an offer.
“You can get in the door now and actually look at the house without worrying about overlapping appointments and incoming bids,” adds DiPierro.
Average home prices are falling, which can balance out rate hikes
It’s never good news for buyers—or sellers—when mortgage rates go up. But it’s important to keep it in perspective, especially as home prices are falling.
“Higher interest rates have two consequences on the real estate market,” says Cam Dowski, founder of We Buy Houses Chicago. “The first advantage is that they frequently reduce housing prices, which is advantageous for buyers. The second is that they deter some customers from entering the market, which benefits those who remain. The result is reduced buyer competition, which further reduces buyer risk, broadens buyer options, and lowers property prices.”
Wave goodbye to waived contingencies
This time last year, desperate buyers were willing to waive finance contingencies, inspections, and more to snag their dream home. No more.
“We are finally in a position to be able to negotiate on the buyer’s behalf, rather than offering everything imaginable to the seller in hopes that their offer might be the chosen one,” says Fletch Newland, a real estate agent at Re/Max in the Seattle area.
“No more eliminating contingencies. No more paying $100,000-plus over the asking price when the price wasn’t below market value to begin with. No more having to decide minutes after the max allowable 15-minute showing window to make an offer, knowing that every hour they wait, the competition for that house will increase,” adds Newland. “Now the power is in the hands of the buyers. Houses are sitting and sellers are fretting.”
DePierro concurs: “Inspection waivers and appraisal waivers are no longer considered necessary to get an offer accepted,” she says. “Instead, we are starting to see addendums requiring a professional cleaning by closing, seller-paid closing costs, or seller-paid warranties.”
Lowballing because of less competition
Mike Hardy, a managing partner for national lender Churchill Mortgage, says many sellers get anxious if there are no offers after 30 days, causing them to make reductions and concessions that will end up benefiting a buyer.
“The list of strategies and advantages available to a buyer today that did not exist just a few months ago is quite lengthy,” Hardy says. “There’s less competition from others, which brings about price reduction possibilities, anxious sellers open to negotiating, you can lowball on the asking price, and more.”
Mortgage rate buydowns are available
Housing costs have shot up, but to combat the affordability issue, many home builders and sellers are offering mortgage rate buydown programs so buyers can nab a home now.
Some of the most popular buydown programs are the 2-1 buydown and the 3-2-1 buydown in which the seller or homebuilder pays some amount of money upfront to buy the rate down. Then, for the next few years of repayment, that rate goes up until it hits the original rate. For example, your seller can buy down your 7% rate to 4% at the start of the payment period. Then, after a year, that rate goes up to 5%, the following year 6%, and then 7%.
“Because a lot of people think that rates will be lower two years from now, it’s a good way, psychologically and economically, to get into a house at a start rate that’s lower than where rates are today,” says Michael Isaacs, the CEO of GO Mortgage.
Hardy says Churchill Mortgage offers a “rate relief” program to help buyers and sellers sweat through the stress together.
“It helps buyers and sellers work together to use a seller credit strategy, helping a buyer secure a significant reduction in rate,” Hardy says.
Page Source: Written by, Kathleen Willcox