Seller concession are at a record high this spring mostly because it’s a buyer’s market, according to a new report from Redfin.
The online brokerage reported that home sellers gave concessions to buyers in 46.2% of U.S. home sales in May, up from 43.1% a year earlier and the highest share for that month in Redfin’s records.
It said that seller concessions are at a record high, with 47% more home sellers than buyers in the U.S.
Mortgage rates and home prices are still historically high, Redfin noted, and many would-be homebuyers are backing away due to widespread economic uncertainty stemming from the impacts of the Iran war, inflation jitters and nerves about job security.
Redfin said that because demand has been lukewarm, listings have piled up, causing sellers to turn to concessions as they compete for buyers.
“There are two main reasons concessions are so prevalent: Buyers have leverage, and some sellers are pricing too high,” said Amanda Peterson, a Redfin Premier Agent in Dallas. “With more inventory and less competition, buyers can be selective and negotiate for everything from repairs to closing costs. Sellers—especially those with dated homes that haven’t been renovated in decades—are increasingly willing to make concessions because they can be the difference between securing a buyer and leaving their listing sitting on the market. Some sellers are stuck in the mindset of the 2021 market, when they had the leverage; those sellers are often pricing too high, making concessions even more necessary to close a deal.”
Most Common in the Sun Belt
According to Redfin, seller concessions are much more common in the Sun Belt than other parts of the country. In Nashville, for example, home sellers gave concessions to buyers in three-quarters (75.5%) of homebuying transactions in May, the highest share among the 28 major U.S. metros included in Redfin’s analysis. Next come Charlotte, North Carolina, where 71.4% of sellers gave concessions to buyers, Atlanta (68.7%), Phoenix (65.6%), and Raleigh, North Carolina (64.1%).
Concessions are more common in those locations because they’re strong buyer’s markets, Redfin said. Nashville was May’s biggest buyer’s market, with more than twice as many sellers as buyers, which motivates sellers to offer concessions to attract buyers, and to get deals across the finish line.
All of these markets saw enormous demand during the pandemic homebuying boom, but have since done an about-face, giving buyers much more leverage, Redfin said. Many Sun Belt metros built homes aggressively to meet pandemic-era demand, and now they have a large supply of listings piled up. At the same time, rising home prices, mortgage rates, insurance costs and HOA fees have dampened homebuying demand. As a result, buyers have more options, so sellers need to compete hard and offer concessions—like covering closing costs or paying for repairs or upgrades—to sweeten the deal.
Redfin noted that the concession rate increased most in Orlando, Florida, where 58.6% of home sellers gave buyers concessions in May, up from 38.3% a year earlier. Next is Phoenix (65.6%, up from 50.7%), and Nashville (75.5%, up from 61.8%).
Concessions were least common in New York, where just 2.9% of home sellers gave concessions in May, the lowest share in the U.S. Next come two Bay Area metros: San Jose (5.9%) and San Francisco (14.9%), followed by Boston (26.7%) and Chicago (27.5%), Redfin said.
One of Seven Seller’s Markets
San Francisco is one of just seven seller’s markets in the country; it’s more likely that buyers are the ones competing to win homes, meaning they don’t have much leverage to get concessions.
New York, Boston and Chicago are all balanced markets, Redfin said.
Redfin said that in its analysis, the concession rate declined in 11 of the 28 markets. It went down most in Seattle, where 48.8% of sellers gave concessions in May, down from roughly 66% a year earlier. That’s explained largely by a base effect: Seattle had the highest share of concessions a year ago, so it had the most room to fall.
Also, Seattle has a near-record share of homes selling below their original asking price, which means buyers are still getting discounts, just not necessarily from concessions. The next-biggest declines were in San Diego (62.3% of home sellers gave buyers concessions, down from 68.3%) and San Jose, CA (5.9%, down from 11.6%).
Roughly one of every seven homes (15.7%) that sold in May nationwide had a price drop in addition to a concession. That’s up from 12.8% a year earlier and the highest May share on record—a similar story to concessions alone.
