Question

Using economic theory, explain what a Los Angles real estate agent hopes to accomplish by purposefully pricing a house well below what reasonably could be expected to be its equilibrium or selling price. (10 points).

Answer 1

In economics, the theory of demand and supply, clearly indicate, what is happening in the Los Angeles real estate market for property.

Often, sellers use the concept of pricing to realize quick cash and be able to sell off a property relatively easily. Even if demand is constant and the seller requires money to be realized quickly, then in that case, he tries to reduce the prices of property so that the demand for it can increase.

It is a well-known thing, that demand and price have an inverse relationship. This means that as prices of goods and service fall, their demand rises and vice versa. When a seller is in urgent need for money, they tend to price the goods relatively cheaper than the market price to influence the buyers. Even though profit margins may decline, fluidity of capital increases for such sellers.

Property rates may change over a period of time, but due to the size of investment, it often becomes difficult for sellers to be able to realize the property in hand. To improve liquidity, land may be priced relatively cheaply by a seller to make sure that they can make maximum profits.

It can also be used as a strategy to reduce competition in the market, and decrease sales for competition. As prices decline for us, competitors become less attractive to consumers and with added discounts tend to demand our properties relatively more.

Please feel free to ask your doubts in the comment section.