First-time homebuyers are in the driver's seat again.
As the housing market cools, savvy buyers seize the opportunity to save themselves hard-earned cash. They're bringing contingencies back, asking sellers to make costly repairs and even submitting offers for less than the asking price of a home. Sellers, eager to go under contract, are not only giving these offers serious consideration, but they're also increasingly coming to the bargaining table.
Please make no mistake: It's still a seller's market. Home prices are ratcheting up as there are far more buyers searching for homes than there are properties to go around.
However, higher mortgage rates combined with record-high home prices and increased inventory have eased the frenzy in the housing market. Home sales have plummeted as many buyers have been pushed beyond their financial limits. Sellers are more likely to reduce their asking price in many markets than receive all-cash offers in bidding wars.
That is welcome news for frustrated buyers eager to get into a home of their own. Knowing when to haggle and what to ask is critical to negotiating a good deal.
For starters, don't expect to get a deal on the adorable, move-in-ready home in a desirable location priced just right and having a line stretching around the block during the open house. Everyone wants that house. Sellers have no incentive to give up anything if they have multiple buyers willing to waive inspections and offer the asking price.
Owners whose homes have been on the market longer are more likely to compromise, especially if they need to sell fast. Buyers have an advantage when negotiating a deal for homes where they won't encounter much competition. These are the fixer-uppers, oddly configured homes, and the houses in less desirable locations such as busy streets.
Once buyers find a place they're interested in, here are some winning moves they can make in the current market.
Submit a bid at or sometimes below the asking price
Sellers who need to relocate or finance the purchase of a new home may be the most willing to cut a deal. That includes a willingness to accept an offer below the asking price if the property has been on the market longer.
Just a few months ago, many sellers thought if they listed their homes on a Monday, 15 offers over their asking price—and at least half in all cash—would roll in by Wednesday. That's no longer the case. According to the most recent data, nearly 20% of sellers resorted to cutting their list prices in August.
First-time buyers who find a home that seems overpriced and has been on the market for more than two weeks may want to submit an offer below the asking price. I'm not advising going overboard and offering 30% less than the asking price. Instead, buyers can work with their real estate agent to review comps for the past month and submit an offer with those numbers in mind.
Keep your appraisal contingency.
When you buy a home requiring a mortgage, your lender will send an appraiser to assess the property's value. An appraisal contingency allows buyers to back out of a deal or at least renegotiate the price of the home if the bank says the house isn't worth as much as you offered.
Suppose the home appraises for the price you offered; great. You're one step closer to becoming a homeowner. If it doesn't, you have the opportunity to renegotiate with the seller. If the seller doesn't have another buyer waiting in the wings, the seller may be willing to come down on the price to match or come close to the appraised value.
Don't waive home inspections.
Whatever you do, please DO NOT WAIVE THE HOME INSPECTION CONTINGENCY.
That recently remodeled KITCHEN or newly renovated primary bathroom might be everything you ever wanted in a home. Still, a fresh coat of paint or clever staging can hide many problems. A professional home inspector can identify issues that could cost tens of thousands of dollars to fix later.
In today's market, most buyers can insist on having a home inspector come in without jeopardizing the deal. If the professional gives the home a clean bill of health, you can then make an informed decision on whether to purchase the property. If the professional finds some issues, you can use that to negotiate a better price or ask the seller to cover the repairs, or split the costs with you.
Ask the seller to contribute to your closing costs
At the height of the pandemic, buyers bent over backward when homes were flying off the market to avoid asking sellers for concessions.
Buyers are now asking for fewer things. Some sellers contribute towards closing costs ranging from 2% to 3% of the sales price. With the median-priced home in Los Angeles and Ventura counties at $950,000 and $860,000, respectively, closing costs can range from $17,200 to $28,500.
Fortunately, many sellers are chipping in. According to a recent survey, 30% of sellers paid for some or all of their buyers' closing costs. A savvy realtor will always ask.
Ask the builder for additional incentives.
Sales of newly constructed homes have plunged as higher mortgage rates have pushed these more expensive homes out of the financial reach of many buyers. According to government data, sales dropped about 30% in July compared with a year ago. That has builders much more willing to cut a deal.
Some builders are buying down mortgage rates for those purchasing new homes. That means you would pay a lower mortgage rate for a few years, which would later bounce back to today's rates. The hope is that mortgage rates will be lower by then, and you could refinance. Builders also do away with premium charges for more desirable lots, premium finishes, and extra amenities. Buyers should consider these facts when they're negotiating.
And it doesn't hurt to see if you can get the home you wanted for less. Builders don't want their homes sitting on the market. So if they don't have someone already lined up for a finished home, builders may be willing to cut a deal.