The recent volatility of interest rates has had a profound impact on buyers’ sentiment on the value of homes. This has resulted in a couple of different types of buyers each of whom has a unique perspective when they are looking at properties. If we take for example a home that is on the market for $2 million, there might be two offers that come in.
The first offer is from Buyer A, who has been shopping for a home for the last year and entered the market in February or March of 2022. This buyer’s journey started when interest rates were much lower, potentially as low as 4%. At that point, the market was very competitive, and buyers had to make multiple offers to be successful in buying a home. Unfortunately, these particular buyers missed their opportunity to make a purchase while interest rates were low. These buyers then saw interest rates skyrocket to 7%, which severely impacted their purchasing ability. Their initial budget was set at 4% so this made payments much higher. Now they are trying to buy their $2 million dream home for $1.7 million because that’s what they can afford after interest rates increased. Buyer A still really wants to be in the same neighborhood and just hopes that they can get the same house at a lower price while being somewhat jaded by the process they have gone through. So, they make the offer they can afford to make at $1.7 million, which the seller does not feel is in line with the value of the home.
The other offer comes in from Buyer B. They just decided to purchase a new home in December and did not have to weather the same storm as Buyer A. They have a fresh perspective and are qualified for up to $2 million at the current interest rate. When they look at the property, they know it is the home of their dreams too, and that it’s worth right around $2 million. So, they have no problem stepping up to the plate to make an offer at almost full price. They come in just under ask and obviously, the seller sees this as the better option.
The tale of these two buyers is very common right now. We are regularly seeing offers coming in significantly lower than we would expect but these buyers are the ones who had to navigate interest rate hikes last year. We are also seeing near full-price offers coming in from buyers who are coming into the market completely fresh and recognize what the home is worth. So, if you are selling your home right now, do not be discouraged if your first offer comes in low. It’s likely one of the buyers who have been trying to find their dream home during one of the more challenging market conditions we have seen in recent years. There will be offers from buyers that are coming in with a new outlook on the market and who recognize the value of your home.