Shawn purchased his home where he’s lived in Chico since the start of the Fall semester...

Shawn purchased his home where he’s lived in Chico since the start of the Fall semester in 2018. He can’t decide if he wants to move to Alturas and sell his home in Chico or if he wants to take an internship in Chico for the next six months and then move. There is a buyer for his home that cannot quite pull together enough money to purchase the home from Shawn. Shawn bought the home just before the CampFire for $180,000. It has been appraised for $280,000 since the fires. What advice do you have for Shawn?

Expert Solution

In the above case, it is said that Shawn currently is the owner of a home at Chico and now he has two options, either sell the home and move to Alturas or take an internship and remain at Chico for the next six months and then move to Alturas. It is also given that if he is to sell the home, he has a buyer who doesn’t have enough money to buy it. Considering the above case, let us analyse each of the options Shawn could prefer and the economics behind each action and finally make the right advice.

· If he decides to sell the home, he now has a buyer who is short of money. Thus, there is an uncertainty that he may lose the profit he could make in the given sales.

· If the home is sold now, he may lose the opportunity cost to earn more profits if the price of the land would appreciate further, considering the fact that the value has been appreciated by $1,00,000 over a period of two years.

· In order to continue and take an internship, he would need to incur some costs for taking the internship. But since it is spent of widening of the knowledge base, it would result in better job opportunities and thus would be beneficial

· If he remains at Chico for the next six months, there is also a fear of fall in land prices if any externality occurs in the economy. This may result in reduction of profits when compared to the sales if done now.

Thus, considering the above points and the hidden economies behind each action, it is more advisable to remain at Chico and do the internship and then move after 6 months. This would make him more industrially efficient and better suited for jobs at the new location and moreover considering the uncertainty in the sales behavior and the scope for further appreciation for the home prices, it would bring him more profits if the sales is done after 6 months.

Rahul Sunny answered 2 years ago

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