Recent data indicates that buyers have increasing leverage in today’s market. For example, existing home sales decreased by 36.9% annually between January 2022 and January 2023. Homebuying demand hit a high point last spring and summer when the average home was on the market for as little as 31 days last May. By January, the average home was on the market for 75 days.
Housing starts are also down 27.3% annually between January 2022 and January 2023. However, housing starts didn’t decline as much as sales did. As a result, overall active housing inventory is up about 15% in the same timeframe. According to Lawrence Yun, Chief Economist at the National Association of Realtors, home sales are low. Buyers can use this to their advantage.
“The current sales activity is even lower than the lockdown month in April 2020,” Yun said in a press release. “Home sales are bottoming out.”
Due to decreasing sales activity, homes are also sitting on the market for much longer. Yun says that this is good news for buyers during the purchasing process.
“Inventory remains low, but buyers are beginning to have better negotiating power,” Yun added. “Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.”
4 Tips for Negotiating a Better Deal at Closing
Buyers can utilize the following tips to try and purchase their home for a lower price.
1. Look for homes that have been on the market for a while
As Lawrence Yun explained, homes on the market for more than 60 days can go for about 10% less than the original list price. Since the average home now sits on the market for 75 days (as of January), buyers have plenty of opportunities to look for listings that have been active for over two months.
Sellers who aren’t able to sell their homes within the first 2-3 months are more likely to accept a lower price or a more favorable deal for the buyer. Prospective homebuyers can see how long a home has been on the market by navigating toward the “price history” section of a listing on RealtyHop.
2. Make an offer below the asking price
Buyers should consider making an offer below the asking price, especially if a home has been on the market for a while. Offering below the asking price can put buyers in a favorable negotiating position, but offering too low can end any negotiations before they start. Depending on specific market conditions, buyers may be able to offer up to 10% below the asking price, but they should still consult with their real estate agent before making any offer.
3.Request that the seller buys down your mortgage rate
If a seller doesn’t budge on their asking price, consider asking them to pay down your mortgage rate for the first year or two of your mortgage. The average 30-year fixed-rate mortgage sits at 6.5%, so reducing the rate by a point or two for the first couple of years of a loan makes a sizable difference.
4. Include a home inspection contingency
Ask for repairs or appliances if applicable. If a seller isn’t willing to accept an offer below the asking price or to pay down the mortgage rate, consider adding a home inspection contingency. The inspection will establish which repairs the house needs. If the house needs repairs, buyers can request that the seller pays for a portion or the entirety of the repair. Additionally, buyers can request the seller to include certain appliances, such as a refrigerator or dishwasher, as part of the deal.
Conclusion
While the current market is still unfavorable in some respects, buyers have increasing leverage to negotiate a better deal at closing. Ideally, a prospective homebuyer should work with a licensed realtor who can help them negotiate the best possible terms.
