<p>What an interesting exercise.</p>
<p>First, it depends on what your other opportunities are - as you say here selling for cash on the next day.  Let's assume that's the only other thing happening, and you use cash to make only safe market investments with return rate <em>r</em>.</p>
<p>The early sale of the house is only a probability, not a certainty.  So assuming each day is iid sold for cash with probability <em>p</em>, I would estimate the opportunity cost of each day as roughly:</p>
<p><span class="math-container">$p*r*ValueOfHome$</span></p>
<p>You could use the bond rate and information about interrupted sales with cash offers to estimate this and charge it as a daily late/delay fee. Doesn't consider the property tax implications of holding the home for too long and other regional real estate nuances I may have omitted, this is only to show how one might calculate opportunity costs for delays.</p>

CC BY-SA 4.0
2022-03-01T22:06:40.657Z
Good approach. But it may also be possible to invest the down payment until it's returned, reducing the opportunity cost by $r * ValueOfHome * DownPaymentPercent$. If the down payment is high and the daily sale odds are low, it's *better* to hang onto a down payment as long as possible and earn interest, since the house probably won't sell in that time anyway. Taking guaranteed interest on 10% of the home value is better than a 5% chance of earning interest on 100% of the home value.
Nuclear Hoagie
CC BY-SA 4.0
2022-03-01T22:11:31.353Z
'+1' for simplicity.
Jesper Hybel
CC BY-SA 4.0
2022-03-01T21:43:56.550Z
2022-03-01T21:43:56.550Z
RegressForward
<p>I've just started working at a real estate company. Some of our customers make a small down payment to reserve a unit and occasionally take a long time (~2-3 months) until they bring the rest of the money and close the deal. Some customers give it a second thought and abandon the deal, hence they request back their down payment.</p>
<p>I feel like there is a considerable opportunity cost in reserving a unit for that long, given that I might be able to sell it for cash the next day. There are also accumulating expenses like salaries and operations costs in closing the deal.</p>
<p>How do I calculate the opportunity cost caused by the delay in closing the deal?</p>

<macroeconomics><microeconomics><opportunity-cost>
Opportunity cost for a real estate company
bisho99
# Opportunity cost for a real estate company

(Asked by: username_0 on 2022-03-01)

I've just started working at a real estate company. Some of our customers make a small down payment to reserve a unit and occasionally take a long time (~2-3 months) until they bring the rest of the money and close the deal. Some customers give it a second thought and abandon the deal, hence they request back their down payment.

I feel like there is a considerable opportunity cost in reserving a unit for that long, given that I might be able to sell it for cash the next day. There are also accumulating expenses like salaries and operations costs in closing the deal.

How do I calculate the opportunity cost caused by the delay in closing the deal?

**Tags:** macroeconomics, microeconomics, opportunity-cost

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## 1 answers

### Answer by username_1 on 2022-03-01. Score: 2

What an interesting exercise.

First, it depends on what your other opportunities are - as you say here selling for cash on the next day. Let's assume that's the only other thing happening, and you use cash to make only safe market investments with return rate *r*.

The early sale of the house is only a probability, not a certainty. So assuming each day is iid sold for cash with probability *p*, I would estimate the opportunity cost of each day as roughly:

$p\*r\*ValueOfHome$

You could use the bond rate and information about interrupted sales with cash offers to estimate this and charge it as a daily late/delay fee. Doesn't consider the property tax implications of holding the home for too long and other regional real estate nuances I may have omitted, this is only to show how one might calculate opportunity costs for delays.

> **Comments:**
> **username_2**: Good approach. But it may also be possible to invest the down payment until it's returned, reducing the opportunity cost by $r * ValueOfHome * DownPaymentPercent$. If the down payment is high and the daily sale odds are low, it's *better* to hang onto a down payment as long as possible and earn interest, since the house probably won't sell in that time anyway. Taking guaranteed interest on 10% of the home value is better than a 5% chance of earning interest on 100% of the home value.  
> **username_3**: '+1' for simplicity.  

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