Question

"It's kind of confusing isn't it? I mean, you interview four agents and you get four different prices... right"? (Yes, why is that?)

"You are probably thinking, why did this person come in with such a low price? Doesn't he or she want to get our listing? Well, my answer is Yes and No."
"You see there is a very big difference in the way that I operate and the way that most agents operate. Most agents manipulate the computer to show figures that they think you want to hear. Why?
"Well, most agents don't do much or get much business. Getting your listing makes them feel like they are accomplishing something...
"Whereas, I, on the other hand, sell homes, non-stop, all day long. Do you want to know why? (Sure)
"There's a very simple reason, do you want to hear it?" (Yes)
"Most agents do not have many listings. Therefore, convincing you to list your home with them becomes very important."
"That's why they'll tell you whatever price they think you want to hear, even if they know six months from now, you will not be happy with them at all because no buyers will look at a house that is overpriced... Does that make sense?"
Top Agent Alternative:
"My comps show the price I have indicated. I will take the listing if you will agree and sign an acknowledgment form tonight that you will reduce the listing to my price in 30 days. I would rather see you turn down 10 offers than never get one."
Top Agent Alternative:
"They emphasize listed prices. All I am concerned with is what is sold and has closed escrow. You wouldn't want to base your price on erroneous info, would you?"
Top Agent Alternative:
"There are two places you can price your home... You can list it where it sits or you can list it where it sells. Which is better for you?"
A) Criticizing the pricing strategies of other agents.
B) Offering a pricing alternative with a conditional agreement.
C) Highlighting the importance of closed sales over listed prices.
D) Encouraging the client to focus on the practical aspects of pricing.

Answer 1

In markets with imperfect information, difficulties in agreeing on a price arise because of skewed perceptions of value due to the absence of complete information. An anchoring bias can influence buyers' expectations, and price changes can lead to incorrect assumptions about quality. These factors can lead to misinterpretation of price signals, complicating the process of reaching a mutually agreeable price.

Step-by-step explanation:

Understanding Pricing in a Market with Imperfect Information:

Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists? In any market, when either the buyer or the seller does not have all the information needed to make an informed decision, this is known as imperfect information. The challenges in agreeing on a price mainly arise because the perceived value of the product or service can vary significantly.

A real-life example of this is seen in the housing market. If a realtor shows a buyer rundown houses at a target price point and then introduces a much nicer house at a higher price, this may challenge the buyer's anchoring bias. Anchoring bias refers to the human tendency to rely heavily on the first piece of information offered when making decisions. In this scenario, the appealing higher-priced house may unsettle the initial budget considerations, causing the buyer to reassess their price expectations.

Similarly, in the used car market, if a dealer cuts prices to sell more cars, buyers might assume the lower price reflects low quality, deteriorating demand. Conversely, higher prices might create an inference of higher quality, potentially increasing demand. It is important to understand that prices are not solely based on the quality of a product; they also reflect the seller's reputation, market conditions, and other factors.

Thus, price signals in a market with imperfect information can be misinterpreted, leading to difficulties in reaching an equilibrium where the quantity supplied equals the quantity demanded at a price that reflects the true value of the product or service.