Two types of existing houses are for sale: ones with a cracked foundation and ones without.In all other respects,they are identical.Houses without cracked foundations are worth $200,000 while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack or $180,000.The frequency of solid foundations is 80%.Sellers know which type of house they have but buyers cannot detect a crack.No seller "must" sell his house in order to move and thus no one accepts anything less than its value.
How can owners of a solid foundation home signal high quality credibly?

Question

Quizplus · Accepted Answer

Offering a warranty to fix any slab problems that develop in the next 12 months would signal high quality credibly because it shows the seller is confident in the condition of the foundation and is willing to stand behind it. This offer would differentiate the house from those with cracked foundations and demonstrate to potential buyers that they can trust the quality of the home. Lowering the price or keeping the house on the market indefinitely may not signal high quality credibly, and advertising on national TV may be costly and not targeted enough to reach potential buyers who are specifically looking for homes with solid foundations.

Two Types of Existing Houses Are for Sale: Ones with a Cracked