The Changing Face of Escrow Negotiations in California's Neutral Market
For the better part of the last decade, California has been entrenched in a seller’s market, with homes flying off the market in weeks, if not days. During this period, sellers had the upper hand, often fielding multiple offers and rarely needing to negotiate after inspections. Buyers, wary of losing their dream home to another bidder, were less likely to request repairs or credits during escrow. However, as the market shifts towards a more neutral environment, the dynamics of transactions have changed considerably.
Escrow negotiations, once minimal, are now becoming a critical part of the deal, with both sellers and buyers having more room to maneuver. Here’s how the real estate landscape has evolved.
Escrow Negotiations: From Minimal to Complex
During the seller’s market, negotiations in escrow were typically minimal. Buyers, concerned about losing out to other offers, would often avoid asking for repairs or credits. Homes were often sold as-is or giving little credits, with sellers feeling confident that any requested repairs would be unnecessary due to the availability of backup offers. Today, however, things look very different.
In the current market, inspections are leading to more extensive negotiations, even if the lender or appraiser doesn’t require repairs. Buyers now feel empowered to request physical repairs or larger credits during escrow, knowing that sellers may not have as many competing offers waiting in the wings. This shift has made each transaction more unique and negotiation-heavy, often prolonging the escrow process.
For example, buyers are now frequently requesting sellers to extend escrow timelines to allow for additional repairs or to complete various inspections.
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Sellers Are More Flexible
In this shifting market, sellers are far more willing to negotiate than they were during the peak of the seller’s market. Homes are staying on the market longer, and with fewer offers to choose from, sellers are more likely to offer:
Larger credits for repairs or closing costs
Accept contingent offers (where the buyer needs to sell their current home before completing the purchase)
In fact, sellers who previously had multiple offers waiting are now often left with one or two offers, making them more likely to accommodate buyer demands, whether those demands include repairs or extended timelines.
Increased Inspections and Repairs
Another shift we're seeing is the rise in the number of inspections involved in a typical transaction. In past markets, agents would often handle one or two inspections during escrow. This year we've seen increased inspections, re-inspections, and repair coordination.
This adds complexity for agents, who must balance coordinating repairs with inspection schedules while ensuring that timelines are met. At times, these repairs are even billed to escrow, where the costs are deducted from the seller's proceeds at closing. This also means that sellers, who are seeing fewer offers, are more likely to agree to these repairs to keep the buyer from walking away.
Have you noticed this market shift?
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Negotiating Commission Structures
Another change is the increased negotiation around commission structures. In some cases, sellers may be willing to provide credits to buyers but might push back on buyer’s agent commissions. This results in scenarios where sellers offer a credit for repairs but negotiate down the buyer’s agent commission, leaving agents to decide whether to ask their client to cover the difference or reduce their own commission.
For an in-depth analysis on how buyer’s agent compensation has changed since the NAR settlement, check out our previous blog on Buyer’s Agent Compensation Post-NAR Settlement.
Conclusion: A More Complex Market for Agents
This evolving market requires real estate agents to be more diligent and knowledgeable than ever before. Each transaction is more unique, often involving extensive negotiations, multiple inspections, and new complexities around repair requests and commission structures. Agents need to stay informed, collaborate effectively with all parties, and ensure they’re aware of the evolving market trends to successfully navigate these challenging transactions.
As we continue to see more flexibility in the market, it’s clear that agents must be masters of negotiation, ensuring their clients get the best deal possible while also keeping transactions on track and closing on time. To thrive in this market, staying on top of these trends is essential for long-term success.
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