Why Concessions in a Seller's Market ?

[ZZGAMAZZ]

I posted a similar thread a month ago but NOBODY agreed, however . . .

1) Every market in each of the recent 50+ jurisdictions I where I have worked is increasing, although perhaps moderately so, in large part because of constrained supply;

2) Approximately 60% or more of every comp in every assignment, as well as the subject, includes seller concessions for recurring and non-recurring closing costs;

3) Concessions are inducements to encourage a potential buyer to select a specific property, as sellers compete for a relatively smaller pool of buyers;

4) Items #2 and #3 define a Buyer's Market although these are Seller rather than Buyer's Markets.

Therefore, why are concessions so prevalent in context with current market dynamics?

Caveat: One savvy guy I know says it's because the typical buyer is extending himself or herself to the extent that their finances are exhausted because they are buying properties that they can't afford in the traditional definition.

 

[Terrel L. Shields]

why are concessions so prevalent in context with current market dynamics?

Because buyers cannot rub 2 nickels together. They spend 100% of their income and have zero savings. So the seller has to "loan" them the money so they can pay the closing

 

[Lee Lansford]

I posted a similar thread a month ago but NOBODY agreed, however . . .

1) Every market in each of the recent 50+ jurisdictions I where I have worked is increasing, although perhaps moderately so, in large part because of constrained supply;

2) Approximately 60% or more of every comp in every assignment, as well as the subject, includes seller concessions for recurring and non-recurring closing costs;

3) Concessions are inducements to encourage a potential buyer to select a specific property, as sellers compete for a relatively smaller pool of buyers;

4) Items #2 and #3 define a Buyer's Market although these are Seller rather than Buyer's Markets.

Therefore, why are concessions so prevalent in context with current market dynamics?

Caveat: One savvy guy I know says it's because the typical buyer is extending himself or herself to the extent that their finances are exhausted because they are buying properties that they can't afford in the traditional definition.

Why?

Buyers are short of cash.

 

[Tim The Enchanter]

Sign of the apocalypse. Save your cash.

 

[Denita Neuenhaus]

Because buyers cannot rub 2 nickels together. They spend 100% of their income and have zero savings. So the seller has to "loan" them the money so they can pay the closing

^This is not exactly correct. The seller is paying some of buyers closing costs and pre-paid expenses at closing, but it isn't a loan. The seller doesn't get it back. From what I see here in my market is that this credit at closing is usually due to one of two things:
1) the buyer needs part of their closing costs paid or they can't close because they don't have the funds for down payment and cc & pp's or
2) there is a repair item discovered during the inspection that the buyer will fix after closing that the seller is paying for the cost of the repair. The only way that the lender will accept the credit is to have it as a closing cost credit. If it isn't a credit at closing, then the seller needs to make the repair at their expense before closing. Many sellers simply don't want to get involved in a repair issue.

 

[glenn walker]

Because without concessions it will no longer will be a sellers market

 

[Elliott]

Why use your own money to buy the cow, when you can repurpose the money to buy magic beans, especially since the seller will include it in the purchase price and Fannie will finance it over 30-years.

 

[Meandering]

I posted a similar thread a month ago but NOBODY agreed, however . . .

1) Every market in each of the recent 50+ jurisdictions I where I have worked is increasing, although perhaps moderately so, in large part because of constrained supply;

2) Approximately 60% or more of every comp in every assignment, as well as the subject, includes seller concessions for recurring and non-recurring closing costs;

3) Concessions are inducements to encourage a potential buyer to select a specific property, as sellers compete for a relatively smaller pool of buyers;

4) Items #2 and #3 define a Buyer's Market although these are Seller rather than Buyer's Markets.

Therefore, why are concessions so prevalent in context with current market dynamics?

Caveat: One savvy guy I know says it's because the typical buyer is extending himself or herself to the extent that their finances are exhausted because they are buying properties that they can't afford in the traditional definition.

So, why aren't the buyers building new homes to compensate for constrained supply?
Out of land? Out of money.

The "values" should not be "increasing" other than if; 60% of sales include concessions that are not discounting the sale prices, by those opinining "value" and favorable financing. Oh but, we need those loans to go through.

So if there is a smaller than historic pool of sellers, constraining supply, and a smaller than historic, pool of buyers, now requiring concessions to buy, you have a market at equilibrium that requires a larger look at the economics of the area. Why don't more sellers want to sell (or are able to sell) and why are there not more buyers? Consider affordability has not raised to the replacement of costs to build new. Each area may have different reasons for this, including broader employment market considerations, new or changing taxes and zoning regulations, aging out of the neighborhood population with an unwillingness to move, blah, blah.

You are describing a market with a big red flag that no one wants to see or acknowledge. The game is always to shoot the messenger, but now you get to be the messenger of the many things that may be suppressing the market. But most likely, no one is paying you for that kind of market research and reporting, because they don't want to hear it anyway. That's why these threads can't get an agreement. Many people don't want to see or acknowledge a coming disaster that would impact them, so the defense mechanism kicks in, make the client happy and you'll survive longer. Tell them what they want to hear.

.

 

[Tim The Enchanter]

Many people don't want to see or acknowledge a coming disaster that would impact them,

The train wreck began a while ago and is ongoing.

 

[residentialguy]

^This is not exactly correct. The seller is paying some of buyers closing costs and pre-paid expenses at closing, but it isn't a loan. The seller doesn't get it back. From what I see here in my market is that this credit at closing is usually due to one of two things:
1) the buyer needs part of their closing costs paid or they can't close because they don't have the funds for down payment and cc & pp's or
2) there is a repair item discovered during the inspection that the buyer will fix after closing that the seller is paying for the cost of the repair. The only way that the lender will accept the credit is to have it as a closing cost credit. If it isn't a credit at closing, then the seller needs to make the repair at their expense before closing. Many sellers simply don't want to get involved in a repair issue.

It still is a loan. It is rolled into the purchase price. And when you use it as a comp, that $10k concessions (what ever they used it for) are adjusted out of the price because it would have sold for $10k less without it.