You will use the following data to analyze this case. Your home is the typical home, approximately 1,875 sq ft with 3 bedrooms and 2.5 baths. You will list the home at the median home price for your area $425,000. You have done some research and most homes in this value range are closing within 26 days of being listed. The typical commission for homes in your value range is 6%. You and your realtor have signed a sales agreement for a 6% commission. The commission is typically split between the agent for the seller and the agent for the buyer, i.e. 3% of the 6% commission will go to your agent. Research shows that realtors in your area, when selling their properties, typically leave the properties listed for 10 days longer than the average listing-to-closing time of 26 days. After 15 days on the market, you receive an offer of $405,000. The agent recommends that you accept the offer. Also, see the help provided in the discussion preparation. Instructions Complete the following, and conclude. What is your opportunity cost if you sell at $405,000 instead of waiting for other offers? What is the realtor’s opportunity cost if you sell now instead of waiting for other offers? Do you think that the realtor’s advice to sell to this first offer of $405,000 is in your best interest? Explain Is there reason to suspect that asymmetric information is causing a market failure in the real estate market? If so, which market failure do you suspect and why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You will use the following data to analyze this case. Your home is the typical home, approximately 1,875 sq ft with 3 bedrooms and 2.5 baths. You will list the home at the median home price for your area $425,000. You have done some research and most homes in this value range are closing within 26 days of being listed. The typical commission for homes in your value range is 6%. You and your realtor have signed a sales agreement for a 6% commission. The commission is typically split between the agent for the seller and the agent for the buyer, i.e. 3% of the 6% commission will go to your agent. Research shows that realtors in your area, when selling their properties, typically leave the properties listed for 10 days longer than the average listing-to-closing time of 26 days. After 15 days on the market, you receive an offer of $405,000. The agent recommends that you accept the offer. Also, see the help provided in the discussion preparation. Instructions Complete the following, and conclude. What is your opportunity cost if you sell at $405,000 instead of waiting for other offers? What is the realtor’s opportunity cost if you sell now instead of waiting for other offers? Do you think that the realtor’s advice to sell to this first offer of $405,000 is in your best interest? Explain Is there reason to suspect that asymmetric information is causing a market failure in the real estate market? If so, which market failure do you suspect and why?

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