Buyer incentives are on the rise to keep home buying an affordable prospect in the difficult housing market we’ve been facing for the past few years.

After the frenzy of 2019 & 2020 that saw sellers with a huge advantage in real estate transactions, 2021 and on has seen drastic increases in interest rates that, coupled with increases in home prices, have put a major stall in buyers’ interest & ability to purchase a home.

MLSOK shows an 18% downturn in closings from an all-time peak in July of 2020 (2,899 closings) to this year’s peak occurring in June (2,374 closings), and the first time for 3 consecutive years of decreases in home closings.

Both new construction builders & sellers have felt the pain, as well. With builders needing to sell their inventory quickly, and some homeowners in situations where they desperately need to sell (such as job movement or even foreclosure), they can find it difficult to attract buyers who can afford to overcome interest rates now nearing 8%.

Both builders & homeowners are increasingly offering seller concessions to attract buyers with creative incentives that can make purchasing a home a more affordable prospect.

Our Flotilla Partners have researched average seller concessions in the Oklahoma MLS over the past 3 years—they’ve nearly doubled from $3,521 in October 2021 to $6,089 in October 2023!

NOTE: These numbers do not include incentives from new construction builders, which aren’t recorded as accurately as existing homeowner concessions.

We’ve put together an explanation of some of the buyer incentives you might find in the market. Each have their advantages & disadvantages based on certain situations.

EXISITNG HOME INCENTIVES

PAID CLOSING COSTS

The most commonly known seller concession is paying for some amount of the buyer’s closing costs. The buyer’s closing costs include a variety of combined fees and pre-paids such as the first year of homeowner's insurance, loan origination fees, title insurance, appraisal fees, HOA transfer fees, and real estate-related taxes.

During the lopsided sellers’s market since 2020, paid closing costs almost became extinct. But with the market slowing inching back into balance, buyers have had increasing success in negotiating for paid closings costs. It’s the most common & understandable incentive, and a good place to start in negotiating.

RATE BUYDOWN

A rate buydown is a common way to lower a monthly payment. Sellers can offer to “buy down” the interest rate for their seller either temporarily or permanently. This method can be a win-win for both the buyer & seller—sometimes costing less than directly reducing the price of a home while resulting in lower monthly payments for their buyer.

A permanent buydown (or paying “discount points”) means a seller can offer to decrease a buyer’s interest rate for the full term of the mortgage. This typically means less immediate savings in monthly payments for the buyer, but greater long-term savings in interest over the years. For buyers expecting to own their home for the full term of their mortgage, this is typically the better option.

A temporary buydown means the seller can pay down some of the buyer’s interest rate for the first 1 to 3 years, with the interest rate returning to “normal” after the discount period. This typically results in greater savings on monthly payments during the first few years (or year) of the discount period, but only for this short time. This can be better option for buyers who don’t expect to own their home for the full length of their mortgage term.

VA LOAN SELLER CONCESSIONS

Military home buyers have some unique advantages such that sellers can include paying down a VA buyer’s credit card debts, student loans, auto loans, and other debts that aren’t possible in other loan situations. As long as concessions don’t exceed more than 4% of the home’s purchase price, selling to a VA loan buyer opens some additional flexibility in making their monthly payment more affordable.

In comparison, conventional loans typically allow sellers to pay only up to 3% in concessions and while FHA loans allow up to 6%, neither allow for paying down a buyer’s debts.

NEW CONSTRUCTION INCENTIVES

Fantastic deals are more and more increasingly able to be found in new construction homes. While existing homeowners are hanging onto their homes with ultra-low interest rates, builders with unsold inventory are motivated to sell their homes that are accruing interest payments each month. The National Association of Home Builders states that 62% of builders offered buyer incentives in October 2023.

NEW CONSTRUCTION AMENITIES & UPGRADES

Builders are less likely to offer drastic price reductions on their new homes (especially if they’ve already sold homes in the neighborhood) as major decreases in sales prices can bring down the comparative value of their existing buyers’ homes.

Instead, buyers may come across incentives of large budgets that can be put towards improvements, amenities, and upgrades to a new home. Fencing, sprinkler systems, upgraded materials, kitchen islands, etc. may all be on the table for asking. Having a builder install these upgrades can be advantageous since they can often get more for their money vs. doing the upgrades later using a contractor who will upcharge to make a profit!

However, be prepared to pay a larger deposit as builders will want to guarantee that you’ll be buying the home—not leaving them holding a home with highly-specific customizations that don’t appeal to a wide range of replacement buyers if you bail on the purchase!

SUMMARY

Days on market for homes are on the rise, so sellers shouldn’t panic if their home isn’t selling as quickly as their neighbor’s who sold in less than 2 weeks during Covid. The average MLSOK days on market in 2021 and 2022 was about 22 days—as of October 2023 it’s risen to 37.

Our advice to sellers is to price your home correctly from the start with a Comparative Market Analysis from your Flotilla Partner, and use reasonable incentives that reflect a motivated seller & attract buyers without creating desperation or suspicion that something may be "wrong" with your home.

© 2023 Flotilla Holdings, Inc.