Motivated Homebuyers Seeing Return of Bargaining Power
Buyers have been backing out of deals in record numbers: 16% of purchase agreements were cancelled nationwide in July, though that percentage was an astonishing 30% in Jacksonville. With steadily climbing interest rates and the looming threat of recession, some homebuyers are getting cold feet. Others are taking advantage.
RECORD NUMBER OF PURCHASE AGREEMENTS FALLING APART
Since 2017, Redfin has been tracking the percentage of purchase agreements that fall apart. It’ll come as no surprise to learn the highest number of cancellations so far took place during March and April 2020, the start of the pandemic.
But now the dubious distinction of highest number of purchase agreements to get cancelled in the shortest period of time has some competition. According to Redfin, prospective buyers are increasingly backing out of deals, with 63,000 agreements being called off in July 2022. The canceled agreements represent 16% of all the homes that went under contract in July.
One realtor in Austin, TX reported that 80% of his sellers who had gone under contract were paying $5,000-$10,000 in closing costs for the buyers so the buyers could lower their interest rates. The same realtor reported that when a buyer recently terminated a contract, his seller had to offer an eye-popping $150,000 price reduction to entice them to stay in the deal.
The highest rate of home purchase cancellations hit even closer to home, though. In July, 800 purchase agreements were called off in July. To put that in perspective, nearly 30% of the homes that went under contract in Jacksonville in the month of July fell through. And Jacksonville wasn’t the only Florida city: Also in the top five was Lakeland.
AN OPPORTUNITY FOR BUYERS
Competition is declining, so househunters are enjoying newfound bargaining power after three years of a pandemic and shockingly low interest rate fueled bidding frenzy.
Buyers are asking for—and getting—repairs, concessions and contingencies. If sellers say no, buyers are backing out and moving on, confident they can find something better. Other buyers, thinking a coming recession could push home prices down, are sitting out, waiting to see if prices will fall further.
Construction on new homes has also been falling. In August, the National Association of Home Builders noted that 20% of builders reported having to reduce prices to limit cancellations and stimulate sales.
Rob Reffkin, CEO of real estate brokerage Compass, says his company is prepared for the real estate market to be 25% below where industry experts believed it would be six months ago. Reffkin concedes a great degree of uncertainty, but says he’s still hoping for a soft landing.
