Home Buyers Are Losing Bargaining Power: 5 Things to Know

As the housing market shows signs of stabilization, home buyers are seeing their leverage over sellers dissipate, according to a new report from Zillow, a real estate information service. The report found that, nationally, buyers paid an average of 3.3 percent—or about $7,000—less than final listing prices in July, which is a substantially smaller bargain than the 4.6 percent—or $10,260—discounts they landed in January. "The strong summer selling season in 2009 has led to a decreasing difference between the last listing price and final sale price," Stan Humphries, Zillow's chief economist, said in a news release issued Wednesday.

[See the 7 Biggest Home Price Negotiation Blunders.]

Here are five things you need to know about this development:

1. Florida: bargain hunter's paradise: Home shoppers in Florida were able to squeeze the largest discounts out of sellers. In Vero Beach, for example, buyers were able to knock 10 percent—or a median of $23,500—off the listing price. Buyers in Sarasota landed discounts of about 8 percent. "The fact that many Florida markets are still showing comparatively higher differences between the last listing price and final sale price suggests that inventory levels are still relatively high, keeping considerable downward pressure on prices and encouraging buyers to seek large discounts off the listing price," Humphries said. However, certain hard-hit markets in California were less kind to bargain shoppers. In El Centro, home buyers had to fork over nearly 2 percent more than listing prices. In other parts of the state—such as Stockton, Merced, Sacramento, Fresno, Modesto, Yuba City, and Riverside—asking and listing prices were about the same.

[Check out the 10 Most Dollar-Discounted Housing Markets.]

2. Housing market stabilization: After a historic string of ugly data, news out of the housing market has turned increasingly optimistic in recent months. July's new-home sales report showed raw inventory at its lowest level since 1993, according to Mike Larson of Weiss Research. At the same time, existing home sales increased for the fourth month in a row, while the pending home sales index hit its highest mark since June 2007. Meanwhile, the most recent Case-Shiller home price report showed that the pace of price deflation is moderating. "The overall trend toward stabilization is undeniable at this point," Larson said in a recent report.

3. Less leverage: The stabilization is a result of several factors, including lower home prices, attractive mortgage rates, and the $8,000 first-time home buyer tax credit. And although still elevated, tighter inventory levels work to erode at least a portion of the negotiating leverage that buyers once enjoyed, Larson said in an interview Thursday. "The buyer may have a little less leverage," Larson said. "That would fit with some of the other things that we have seen in some of the other reports."

4. More realistic listings: Larson also believes the data indicates that home sellers—who have found it painful to reduce their listing prices from precrash levels in the past—may finally be getting more realistic. "The more this thing drags on, the more people are willing to throw in the towel and list for [a lower price]," he says. "Or the more they are willing to listen to their real estate agent saying, 'Look, you are going to get X, you are not going to get Y, so don't even bother listing your house for Y.'"

5. Tax credit expiration: Patrick Newport, an economist at IHS Global Insight, cautions that the shrinking spread between listing and selling prices could widen in the future. He notes that at least some of the recent demand for housing is being stoked by the government's tax incentive, which expires December 1. "One reason the margin is narrowing and that buyers are losing power is because there are more people out their trying to take advantage of the credit and demand is up," he says. "Our call is that once this incentive goes away, sales are going to take a hit." As a result, Newport says the spread will "probably" widen after the tax credit expires.