Buyers are willing to make concessions in order to buy an affordable home.
Majority of Buyers Willing to Make Concessions
A recent survey from Bankrate.com found that approximately 58% of adults in the US would make some concessions to land an affordable home in this competitive housing market.
To be sure, home prices hit a record high in April due to continued low inventory. The National Association of REALTORS® indicated that the median price of an existing home sold for $391,200 in April, an increase of +14.8% y/y.
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Between record-high home prices and mortgage rates that are approximately +50% higher than just one year ago, according to Realtor.com, homebuyers, particularly Millennials and Gen-Zers, are willing to make concessions just to establish themselves as homeowners.
Buyers Considering Different Neighborhoods & States
Jeff Ostrowski, an analyst with Bankrate.com, said, “Not that mortgage rates have risen pretty dramatically, there is an affordability crunch really affecting first-time buyers. (Mortgage rates on a 30-year fixed loan hit 5.36% last week, according to Mortgage Daily News.)
This affordability crunch has spurred buyers to rethink and stretch their geographic boundaries. Bankrate found that 25%+ of US adults are willing to move out of state. 20% would consider more farther away from their family and friends to grab an affordable house. 11% would move farther from work and/or to a less desirable area.
Ostrowski advises potential buyers who are thinking about moving to new/different areas to “…rent a place for a few months or a year and get to know the area. See if you really want to live there.”
Buyers Considering Fixer-Uppers
Sure, houses that need work are often selling at lower, more affordable prices. But, fixing up fixer-uppers often require a lot of effort, take longer to fix than estimated and cost more than expected.
Clare Trapasso, Realtor.com’s deputy news editor said that, in addition to higher material and labor costs (+19% y/y), supply chain issues are making wait times for essentials such as doors, windows and appliances stretch into six-month periods.
Additionally, Bankrate’s Ostrowski said, “You are probably going to have to come up with a lot of money to pay contractors…” if, in fact, a buyer can even find an available contractor because they’re so busy right now.
Buyers Skipping Inspections
Realtor.com found that 25% of buyers were willing to skip inspections and appraisals to save time in order to get a deal done.
Trapasso isn’t keen on this because “If there is something wrong with the home that (the buyer) can’t see with the naked eye, it could cost (the buyer) tens of thousands of dollars to fix.
Trapasso suggests that considering a structural inspection (electrical, roof and foundation only) would be a better choice rather than skipping an appraisal/inspection altogether.
To Bid or Not in Bidding Wars
The Realtor.com “concession survey” found that 22% of sellers said there was a bidding war for their property. If/when participating in a bidding war, Ostrowski suggests that potential buyers “…have an idea of how much you are willing to pay, how high you want to go and at what point are you going to back out…”
Ostrowski suggested, “Leave yourself some wiggle room in case of emergency or in case costs continue rising…” such as inflation, energy costs, etc.
Other Deal Concessions
- Opt for a larger down payment
- Lease back the house to the prior owners if they need more time
- Opt for an adjustable-rate mortgage (ARM) to get a lower interest rate.
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