In some countries, real estate agents negotiating with prospective

Question

In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. They do this because potential sellers are more likely to entrust their houses to the agent who values them highest. In a housing market with falling demand, the predictable result is a sharper drop in the number of houses sold than the drop in demand alone would account for.

Which of the following, if true, best explains the result described as predictable above?

(A) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction.

(B) Real estate agents do not earn the commission on houses they help sell until the sale is actually executed.

(C) Many people sell their old house below the asking price in order to obtain the funds to buy a new one

(D) In a housing market with rising demand, even houses that were originally overpriced usually sell at the asking price.

(E) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell.

ChrisLele · Accepted Answer

This indeed as a resolve the paradox question, because there is a sharper decrease in the number of homes sold than the drop in the market alone accounts for.

We need an answer choice that best explains this trend:

a) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction.

Doesn't help explain the sharper drop in home sales.

b) Real estate agents do not earn the commission on houses they help sell until the sale is actually executed.
 
Whether agents earn commission doesn't explain why houses aren't sold.

c) Many people sell their old house below the asking price in order to obtain the funds to buy a new one.

Here we are dealing with sellers who sell low, not those who can't sell because their price is too high.

d) In a housing market with rising demand, even houses that were originally overpriced usually sell at the asking price.

We are dealing with a housing market with falling demand.

e) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell.

This answer choice suggests that sellers will not go below a certain value because they believe that the house to be valued at the cost of their initial offer. Since their initial offer is high (the agent who makes the highest bid is more likely to be recruited), these sellers will unlikely be able to sell their homes. ANSWER

gmatway · Answer

Well it took me little time to decode whats going on in the last lines but via logic we can understand and decode this easily without even getting into core meaning .
Lets DECODE

1)In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. = so I am owner of my house and I wish to sell my house .My agent told me (recommended) to keep initial price max permitted price as per current market . Yeah I want best price thanks agent.
2)They(AGENT) do this because potential sellers are more likely to entrust their houses to the agent who values them highest. = yeah this agent is gonna make me richer. I am already impressed with the recommendation . So we have agreed to sell my house for 4 MILLION DOLLARS.
3)In a housing market with falling demand, =when demand for purchase of house falls
4)the predictable result is a sharper drop in the number of houses sold than the
drop in demand alone would account for.= normal demand should be at rate of 40 % (lets assume) ,but actual demand DROPPED by 80% . Well I want to sell my house for 4 million dollars coz my house is worth this amount .Now if demand for houses go low and I know market is down but I won't sell until the market comes up because I am in no hurry , my house is valuable and I ain't gonna sell it for fewer than 4 million dollars . and if other SELLERS too think my way then they too won't be selling their houses which would force the already low NATURALLY LOW DEMAND to fall more because no seller is ready to lower the price and no. of houses available for sale are not enough .

Option A vs E

In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. They do this because potential sellers are more likely to entrust their houses to the agent who values them highest. In a housing market with falling demand, the predictable result is a sharper drop in the number of houses sold than the drop in demand alone would account for.

Which of the following, if true, best explains the result described as predictable above?

(A) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction.
NOW no info about new construction is given . We always have to choose BEST answer and E is better than this .Moreover the drop in demand depresess prices but still thsi option fails to tell us why there is sharp decrease in demand for houses .

(E) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell.
This is exactly what we were thinking . IF SELLERS DONT SELL THE DEMAND WILL SHARPLY GO DOWN . its called forced downward push on demand (thats not official name I just gave it this name in case you wanna use this logic in other relevant CR)

GyanOne · Answer

Clearly (E).

A: Unrelated. We have no information about earlier strong demand. 
B: Out of scope. The commission of the agents is not being discussed here. 
C: Out of scope. Old and new houses are not being discussed here. 
D: We are discussing a market with falling, not rising, demand. Out of scope. 
E: CORRECT. If the initial asking price is the minimum that the seller will accept, a lot many more houses will remain unsold than could be explained by just a drop in demand. This will happen because less houses will be sold due to lesser demand AND even those houses that could have been sold (in spite of the reduced demand) will remain unsold because the owners perceive that the price being offered is too low

Vatsal7794 · Answer

Hi
 KarishmaB   MartyTargetTestPrep   RonPurewal

I was not able to understnad the last line
Can someone please help me?

Thanks

MartyTargetTestPrep · Answer

The last line means that, for some reason, the practice of recommending initial asking prices that are as high as the current market permits causes a decrease in the number of houses sold that is greater than the decrease that would occur if a drop in demand were the only factor causing the decrease.

KarishmaB · Answer

In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits.

When real estate agents solicit work from people who want to sell their houses, they recommend that the sellers should ask for as high a price as the market permits.

They do this because potential sellers are more likely to entrust their houses to the agent who values them highest.

They do this so that the seller entrusts their house to this agent. If one agent tells me that I should ask for 250k for my house but another recommends 300k, I am likely to go with the agent recommending 300k because I would feel that he has valued by house better and that with him I am likely to get a higher price for my house.

In a housing market with falling demand, the predictable result is a sharper drop in the number of houses sold than the drop in demand alone would account for.

So people price their houses as high as they can. But then, the house may not sell at such a high price. If the demand is falling, the one can expect that number of houses sold would be even lower than what one would expect due to decreased demand. 
So if demand is falling, and 100 houses are on sale but demand is there for only 80 houses, one would expect that even 80 will not get sold. Actually only 60 houses may get sold because owners are asking too high a price for their houses.

Raman109 · Answer

Understanding the argument - 
The conclusion is, in a way, saying that with falling demand, one would expect 50 houses out of 100 to get sold, but the drop is even sharper. Only 10 out of 100 may get sold. So it means that there is something else that is causing this decline. That is what option E does.

Option elimination -

(A) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction. It describes a scenario that's not in the scope of the argument. Out of scope.

(B) Real estate agents do not earn the commission on houses they help sell until the sale is actually executed. When the agents get a commission, it doesn't explain the result. Out of scope.

(C) Many people sell their old house below the asking price in order to obtain the funds to buy a new one - This may increase the number of houses sold. And doesn't help explain the result. It's not giving us any alternate reason that makes the drop sharper. Opposite of what we are looking for.

(D) In a housing market with rising demand, even houses that were originally overpriced usually sell at the asking price. - We are looking for falling demand. Out of scope.

(E) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell. - perfect. This gives us an alternate reason. That reason is the high asking price which will add fuel to the fire and make the drop sharper.

agrasan · Answer

Hi experts  MartyMurray   KarishmaB   GMATNinja   IanStewart   GMATNinjaTwo

Is option A wrong because it explains:
1. It presents a conditional statement (If X then Y), we don't know whether X happens in the argument at the first place
2. Explains what will happen when there is a drop in demand but doesn't explain why there is a sharper drop in number of houses sold so discrepancy still remains unsolved

Please let me know if above reasoning is correct or not.

VerbalBot · Answer

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