When real estate agents sell their own, rather than clients', houses, they leave the houses on the market for a longer time (10 days longer on average) and wind up with better prices.
Suppose that real estate agents earn a commission equal to 3% of the sale value of each house that they help sell. Suppose a real estate agent has an offer on a house of $400,000. The agent can get a 5% higher offer with more effort and by leaving the house on the market for a few more weeks.
If the agent sells the house now, he will earn a commission of $____ . By keeping the house on the market and expending more effort to sell the house, the agent can earn a commission of $_ . Thus, the agent gains $__ for the extra effort and time of keeping the house on the market.
Suppose a real estate agent has an offer on a house that he owns. The agent has a current offer of $400,000, but can get a 5% higher offer with more effort and by leaving the house on the market for a few more weeks. Assume that all of the commission is paid back to the agent, since he will act as the agent for the sale.
If the agent waits to sell the house, he gains $_ more than selling the house now. Since this amount is (less/more) than what he would gain by waiting to sell a house he does not own (as in the first part of the problem), the agent is_____(less/more) likely to keep a house on the market and expend more effort to sell a house that he owns, as opposed to one that he does not own.

If the agent sells the house now, he will earn a commission of $12,000. By keeping the house on the market and expending more effort to sell the house, the agent can earn a commission of $12,600. Thus, the agent gains $600 for the extra effort and time of keeping the house on the market.

If the agent sells the house now, he will earn 3% on $400,000:

= 400,000 * 3%

= $12,000

If the agent waits, the offer could increase by 5%:

= 400,000 * ( 1 + 5%).

= $420,000

New commission would therefore be = 420,000 * 3% = $12,600

Gain = 12,600 - 12,000 = $600

__________________________________________________________

If the agent waits to sell the house, he gains $20,000 more than selling the house now. Since this amount is more than what he would gain by waiting to sell a house he does not own (as in the first part of the problem), the agent is more likely to keep a house on the market and expend more effort to sell a house that he owns, as opposed to one that he does not own.

If the agent owns the house, the gain is:

= 420,000 - 400,000

= $20,000

This amount is more than the $600 he would gain if the house wasn't his as shown in the first question.

He will therefore most likely wait and expend more effort so he gets this $20,000.