Purchase agreements between home buyers and sellers are falling apart at the highest rates since the onset of the COVID-19 pandemic.
In July, 63,000 home buyers backed out of purchase agreements. At 16.1% of pending home sales, that’s the highest share since March and April 2020, when deals fell through at 17.5% and 16.3%, respectively, according to a new report from Redfin.
Home sellers may be feeling a sense of déjà vu, but the reasons behind the uptick in broken contracts are different than in 2020. Unlike the COVID-related financial shocks and panic at the start of the pandemic, higher mortgage rates coupled with high prices are now forcing some buyers to leave the market while they wait for a better deal.
Buyers are willing to hold off on purchasing for a lower price, Heather Kruayai, a Florida-based real estate agent, said in a statement Tuesday.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate," Kruayai said. "They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better."
Today, buyers are able to utilize contract contingencies—including home inspections, which jumped up 6% from 2021—that allow them to exit a purchase agreement in the case something is wrong with the home, without penalty. And with more homes available this summer than last, they’re more comfortable walking away from a bad deal now than they were in 2021.
Buyers are actually more likely to have even further negotiating power in the second half of 2022, according to Redfin's report.
“Sellers have already begun to lower their prices after putting their homes on the market," Taylor Marr, Redfin's deputy chief economist, said in a statement. "They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations."
But buyers still need to be cautious when they walk away from a contract as there’s no guarantee they’ll be able to find a more suitable home in the future for a reasonable price.
While annual home-price growth has slowed from 17% a year ago to 8% today, most Redfin economists don’t anticipate a housing market crash in the future. They even predict that these cancellations could taper off as sellers become adjusted to the slowing market.
For concerned sellers, Kruayai’s advice is to keep up with necessary maintenance like minor repairs, or other issues buyers might notice during a walk through. Sometimes simple fixes, like repainting a living room, might be the difference that makes a house stand out.
And be open to buyer negotiations, as they might have other home options on the table, she said.
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