The US housing market is presenting unique opportunities for buyers, with hidden discounts that aren’t reflected in the standard sales data. While median home prices appear relatively stable year over year, the reality is that buyers are negotiating significant concessions that lower the actual cost of homes.
These concessions, which include closing costs, interest rate buydowns, repair credits, and even cash, are driving the real cost of homes much lower than the published numbers suggest. Nearly half of all home sales now include some kind of seller concession, a trend that is reshaping the market dynamics.
Understanding Seller Concessions
Seller concessions are additional costs that sellers agree to cover during the negotiation process. These concessions do not affect the final sale price but significantly reduce the buyer’s out-of-pocket expenses. Common examples include covering closing costs, providing interest rate buydowns, offering repair credits, and even giving cash back to the buyer.
According to a recent study by Redfin, over 46% of US home sales in included a seller concession. This marks a significant increase from 43% a year earlier and is the highest share for any May since Redfin started tracking this information in 2019. Additionally, about 15-16% of homes sold in May had both a price drop and a concession, indicating a strong buyer’s market.
The Impact of Concessions on Home Prices
The typical concession size runs roughly 1.5% to 2% of the sale price on average. For a home worth $400,000, this translates to $6,000 to $8,000 in savings. However, for buyers who specifically negotiate concessions, the range can be much higher, typically between 5% and 7%. This means savings of $20,000 to $28,000 on a $400,000 home.
These concessions can be used for various purposes, including covering closing costs, loan buydowns, prepaid expenses like taxes or insurance, and even renovation costs. The sheer amount of these savings makes them a very appealing option for buyers, especially in a market where prices and interest rates remain high.
Strategies for Negotiating Concessions
To take advantage of these hidden discounts, buyers should focus on negotiating concessions as part of their Many sellers are more willing to offer concessions than to lower the asking price, making this a powerful tool for buyers. For example, offering a slightly higher price with concessions can be more palatable to sellers than a lower price without concessions.
Buyers should also consider the long-term value of concessions. A rate buydown, for instance, can be more valuable than a nominal price reduction, especially for investors focused on cash flow and ROI. It’s essential to do the math and understand the trade-offs between price reductions and concessions to make the most informed decision.
By understanding and leveraging these concessions, buyers can achieve substantial savings and better negotiate their next home purchase.
