Fat Farm

From CNN Video, we have Condos Come with Extras.

For anyone who doesn't want to watch the video (I was bored to tears!), let me give you the run down.

This is about a couple whose condo has been on the market for over a year with no offers.

(Smart economists should figure out what's wrong from just this one statement.)

The're offering a pair of round-trip airline tickets, and they "may also throw in a $1,000 bottle of wine."

Also interviewed is a realtor who says that his clients are using "creative gimmicks" like offers of a Vespa scooter, a month of massages, and a personal chef.

The obvious flaw?

If something doesn't sell, the price is wrong. It is that simple. Everything sells if you lower the price enough.

Two, offering an incentive is the same as lowering the price. So why not just lower the price?

Well, there are two possible reasons here. The sellers have an "emotional attachment" to the price, and the realtors have it in their interest to have a higher price so that they get a higher commission off of it. (Why the sellers are so blind to this obvious thing is mysterious to me!)

Thirdly, by offering an incentive, you actually lower the number of potential buyers.

Why?

Because the sellers are now creating a double-incidence of wants i.e. you have to find a buyer who wants the house, and the Vespa scooter, or the house, and the $1,000 bottle of wine, etc.

Fourthly, since the vast majority of people are buying houses on credit, at 6.5% interest, you pay roughly $1,275 in interest payments i.e. you are paying $2,275 for a $1,000 bottle of wine.

Not to mention that you now pay insurance, and property taxes [sic] on a bottle of wine!

That's one hefty chiquita!