A consumer values a house at $525,000 and a producer values the same house at $485,000.If the transaction is completed at $510,000,what level of tax rate will result in unconsummated transaction?

Question

​A consumer values a house at $525,000 and a producer values the same house at $485,000.If the transaction is completed at $510,000,what level of tax rate will result in unconsummated transaction?

Quizplus · Accepted Answer

The transaction will only be unconsummated if the tax rate is greater than the difference between the consumer's and producer's valuation divided by the transaction price: 
($525,000 - $485,000) / $510,000 = 0.098 or 9.8%. 
Therefore, a tax rate of 5% would result in the transaction being unconsummated.

​A Consumer Values a House at $525,000 and a Producer

A Consumer Values a House at $525,000 and a Producer