Question

Amy is trying to decide whether or not it would be beneficial to employ the services of a real estate broker in order to facilitate the sale of her home. She has estimated that the marketing costs and opportunity cost associated with time spent dealing with prospective buyers amounts to $5,000. If Amy were to sell the house on her own for $200,000, but a broker would have been able to negotiate a higher price of $206,350, what commission rate should Amy have been willing to accept from a real estate broker to make her indifferent between selling the house on her own and hiring a real estate broker

Answer 1

Amy have been willing to accept the real estate broker with the commission rate of 5.5%.

Step-by-step explanation:

The person who arranges transaction between the buyer and seller or the person who works as mediator in the transaction between two parties is known as broker. These brokers work for commissions from the parties involved in transactions.

Broker helps the selling party by increasing the cost of selling. In turn, they fix some percentage of commission as their service charge. In the above scenario, Amy decided to sell her house on her own. On calculating the opportunity cost and current market cost, she fixed the price to be $200,000.

But a broker was interested in selling the Amy’s house at cost higher than her estimation. The broker was ready to sell the house for $206,350. It is good deal for the Amy to go with the broker’s help if the commission rate is 5.5%.