Buyers gain negotiating power as homes stay on the market longer
Homes are staying on the market longer, shifting leverage from sellers to buyers who can now negotiate price cuts.
Buyers now have more negotiating power as homes linger on the market longer. This shift follows Federal Reserve interest rate hikes, which have altered mortgage affordability and cooled the intense competition of recent years.
Over the past several years, limited inventory led to bidding wars and little room to negotiate. Today, longer listing times in many markets give buyers opportunities to negotiate on price, closing costs, and other concessions.
How buyers can leverage current conditions
Buyers can negotiate seller contributions to closing costs, interest-rate buydowns, or price reductions. This is especially effective for homes that recently fell out of contract and returned to the market.
A buyer looking at a $400,000 home may negotiate a seller contribution toward closing costs or an interest-rate buydown while also discussing the purchase price. In such situations, a combination of price reduction, seller-paid closing costs, and funds toward a rate buydown may create more value than negotiating on price alone.
Contributing toward closing costs or helping fund an interest-rate buydown can make a property more affordable. It also helps a seller close a transaction. Tim Deibert said, "One strategy I like is looking for homes that recently fell out of contract and returned to the market."
Sellers must adapt to changed dynamics
Sellers who thought their home was sold may need to relist and become more flexible. They may have more room to negotiate if they have already purchased another property, are relocating, or have another pressing reason to sell.
Pricing correctly from the beginning is especially important now. Sellers may need to be more flexible than during periods of heavy buyer competition for limited inventory. They should understand current conditions, price appropriately, and consider terms that could help attract buyers.
Mortgage rates and broader economy shape outlook
Thirty-year fixed mortgage rates are influenced by longer-term bond yields and inflation expectations. The broader economic outlook, including energy prices and employment data, will influence whether current buyer leverage lasts.
Inflation remains a key factor. Energy prices, including oil movement through the Strait of Hormuz, are part of the inflation picture. If energy supplies normalize and oil prices decline, that could ease inflationary pressures and potentially create a more favorable environment for mortgage rates.
Employment, consumer spending, economic growth, and future Federal Reserve policy will also influence mortgage rates. The Federal Reserve raised its benchmark interest rate by a quarter of a percentage point in mid-September, bringing the federal funds target range to 3.75% to 4%.
Higher mortgage rates reduce buyer purchasing power. They shrink the pool of qualified buyers, lead to fewer showings, longer marketing times, and fewer competing offers. If mortgage rates decline and buyer demand increases, some of the current buyer leverage could disappear. Buyers cannot renegotiate purchase price or seller concessions after competition increases.
Real estate is a long-term play. Buyers and sellers should evaluate the full transaction rather than trying to perfectly time interest rates. Today’s market has challenges but offers less competition and greater negotiating flexibility. This may create opportunities not available when conditions change.
Buyers should consider affordability, property price, available concessions, and whether the home fits their needs when evaluating opportunities in today’s market.
