For several years now, home sellers have had the upper hand. We all remember the covid market - extremely high buyer demand, homes receiving numerous offers and selling over asking price within days of hitting the market. While the frenzy has slowed down with the help of rising interest rates, sellers still technically hold the advantage for one simple reason: months supply of inventory. This metric sheds light on how many months it would take to sell the current housing inventory based on the current demand of buyers. Six months is the tipping point, anything over that is considered a ‘buyer’s market’. For the past few years, we’ve seen less than two months supply. But with the impact of rising rates, we now sit at 2.4 months supply across the Denver Metro, with a continuing upward trend. While we’re still far from a true buyer’s market, there are several reasons why buyers have more of an advantage right now.
Countless buyers have decided to sit on the sidelines and wait for rates to come down, so homes are starting to sit longer on average. And while buying right now with higher rates is less attractive, it does open the door for more negotiation with sellers. After all, nobody wants their home sitting on the market. The longer it sits, the more people tend to wonder what’s wrong with the home, especially after one, two, maybe three price reductions. So, buyers have a unique opportunity right now: they have less competition, more homes to choose from, and several ways to get more money from sellers.
You may be familiar with the term ‘Seller Concessions.’ Essentially, sellers give you money toward things like closing costs, rate buydowns, home repairs, etc. These have become much more common in our current market as a way for sellers to incentivize people to buy. And if the seller isn’t offering any concessions up front, they’re more likely to accept an offer where the buyer is asking for them, especially if the home has been sitting on the market for a while. Let’s take a look at some of the best ways to utilize concessions as a buyer, or a seller.
One of the most valuable things a buyer can ask for or a seller can offer is money toward a mortgage rate buydown. There are several ways you can buy down your interest rate, either temporarily or permanently. With a temporary 2-1 buydown for instance, your rate would be reduced by 2% in year one, 1% in year two, then back to market rate in year three and beyond. By that third year, we’d hope to see lower mortgage rates, so this could be a great option to save you money in the long run. On the other hand, you could put the money toward a permanent rate buydown, which covers the entirety of your loan. Your lender can help lay out these scenarios for you so that you can ask the seller for the right amount of money, and you can choose the best option for your situation. Our partners at Collective Mortgage have made this even easier for sellers. They’re offering a free 1-year buydown or credit towards a permanent buydown to any buyer who works with them on their loan. As a seller, this means you don’t have to put up any money, but you can still advertise a free rate buydown to prospective buyers. And if you want to sweeten the deal, you can offer to contribute more toward that buydown. Either way, our partners at Collective Mortgage can help you at no cost!
Maybe you’re in a situation where the home you’re buying needs some work - an updated kitchen, a new roof, or perhaps some new landscaping. Once you have an idea of how much the work would cost, you can ask the seller to provide you with the money to pay for it, or at least contribute toward those repairs. For example, plenty of sellers have reduced their list price by $10,000. If their home has been sitting long enough, they may be much more willing to contribute that money towards your home improvements rather than reducing the price and taking the chance of it sitting even longer.
Another popular option is for the seller to contribute money toward closing costs. These costs vary from transaction to transaction, but they can add up to a significant amount in some cases. Having the seller pay for all or a portion of the closing costs can give the buyer a lot of relief, and obviously help sell their home faster.
The bottom line is that buyers have more room to negotiate right now. Yes, interest rates are high, but that’s actually opened the door for more opportunities as a buyer. You have more homes to choose from, more time to make a decision, less buyers to compete with, and room to negotiate for a better interest rate. If you decide to wait for lower rates, chances are the increased demand from other buyers will decrease all of the opportunities listed above. If you’re in a position to do so, now may be the perfect time to lock in your dream home.