By Dawn Whalen
Whalen Realty Group at F.C. Tucker Company
A year ago, the average interest rate for a 30-year, fixed-rate mortgage was around 3.367 percent. Today that number stands at 7.32 percent. The doubling of interest rates over the past 12 months is having an impact on what homebuyers are asking for in their offers, and the expectations of sellers. The real estate market is currently in neutral territory, with neither side seeing large concessions or windfalls, but for potential homebuyers, there are a few trends that are making a comeback.
The return of closing costs
In the past few weeks, realtors have seen the return of a common request from buyers: closing costs. If a buyer had asked a seller to pay closing costs anytime over the last two years, the answer would have been a quick, “no.” But, since the most recent interest rate hike, buyers are asking for it again and getting it. Buyers are paying more each month for their mortgage and in an effort to try and hold onto a little bit more money, they’re asking sellers to cover closing costs.
It’s important to note that not all sellers are willing to entertain the idea of paying their buyer’s closing costs, but it’s definitely been a discussion point. There are two primary methods being used for buyers to entice sellers to pay closing costs: price and repairs. Few sellers are still receiving offers that are thousands over asking price, but if a buyer is willing to pay the listed amount, or close to it, then the seller may be more inclined to accept paying closing costs. Also, if the home inspection identifies areas that need to be addressed, and the buyer is willing to take on those repairs themselves, that may also encourage the seller to pay closing costs.
Pre-approval letters are important
Sellers are aware that the financial and real estate tides are changing, and as a result they’re more cautious about the financial stability of the buyers. Sellers do not want to enter into negotiations with a buyer that does not have the financing available to move forward in a transaction. More so than in the past, sellers want to see a copy of the pre-approval letter along with the buyer’s offer.
The pre-approval letter tells all parties in the transaction that the buyer is strong financially and can afford to purchase the property, without any foreseeable delays or problems. Houses are staying on the market longer than last year, and fewer offers are coming to the table, which makes it important for sellers to work with buyers who are already pre-approved financially. Sellers do not want to work toward a closing date, only to find that financing fell through on the buyer’s side. Buyers that include their letter with the offer are more likely to have their offer considered than those that do not include the pre-approval or promise to send it over later.
The increase in interest rates is having an impact on the real estate market, but not to the degree that one side has more of an advantage than the other. There is still inventory available and buyers willing to move.
Dawn Whalen is owner of Whalen Realty Group, at the F.C. Tucker Company, and has worked in residential real estate for more than 17 years. She’s a licensed realtor, broker, is a member of MIBOR, is a preferred realtor and founder of Whalen’s Heroes, which provides funding to purchase service animals for veterans. She can be reached at Dawn@whalenrealtygroup.com.