Ed Dodson responding...

Bryan Caplan wrote:

> The company I'm buying a house from won't negotiate any part of the
> basic contract.  Why not?  The dopey answer is "monopoly power"; even if
> the company were a monopoly, that wouldn't explain why they exert their
> power on the contract terms margin rather than the price margin.  So
> what's the right answer?
> I tend to think that the seller just anticipates no gains to trade.  The
> higher the price, the fewer takers, the fewer takers, the higher average
> transactions costs, sp WTP never rises above MC.  Other ideas?

Ed Dodson here:
Purchasing a house is not quite like purchasing almost any other asset. In
every state there is a long (somewhat different) laundry list of
requirements. Purchase and Sale Agreements must be consistent with those
requirements. On top of that there are further restrictions when the
purchase is financed. On top of that there are furher restrictons when the
lender is making the loan with the intent on selling its interest in the
loan in the secondary market.

Buying a house from a builder exposes you to as a buyer to other pressures.
In a seller's market, the builder is going to be the least flexible: no
discount on the cost of upgrades, maybe an unwillingness to change the
options of amenities at all. In a seller's market, you might be better off
hiring an architect and a custom home builder. The cost will certainly be
much more, but you will get the house you really want without having to

Transaction costs are generally fixed. Again, in a seller's market the
builder or seller of a house is going to push as much of that cost as is
permitted under law to you, the buyer.

In most residential markets, the developer does not have anything
approaching monopoly power, depending upon the flexibility of the buyer's
willingness to opt for reasonable substitutes. If the criteria is: (a) 3,000
square foot home; (b) walk to all major shopping and to employment; (c)
annual property taxes under, say, $3,000 -- then the choices are going to be
very limited.

org:Fannie Mae;Housing and Community Development, Northeast Regional Office (NERO)
email;internet:[EMAIL PROTECTED]
title:Senior Affordable Housing Business Manager
note:If you need to reach me during non-business hours, send an email to: [EMAIL PROTECTED]
adr;quoted-printable:;;1900 Market Street=0D=0ASuite 800;Philadelphia;PA;19103;U.S.A.
fn:Edward J. Dodson

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