🚧Consumer

Analysis

Consumers are expected to make decisions that maximize utility and wealth, given price and income constraints. Tastes and preferences are typically inferred from observing outcomes of consumer actions. However, the study of real estate can, and in some ways already does, benefit from inclusion of consumer behavior concepts. Incorporation of these concepts into real estate education would help explain and predict the behavior of real estate decision-makers.

Appraisal attempts to estimate the value of property to consumers. Market analysis attempts to predict consumer demand for real estate services. Investment analysis examines the required and expected rate of return to an investor, and finance analyzes consumers’ mortgage choices and likelihood of repayment.

The study of consumer behavior involves trying to understand complex human beings and the reasons they act the way they do in the marketplace. It recognizes that consumer decisions take place inside a person who is distinctive in his personality and attitudes, yet similar to other consumers who have been exposed to the same external influences of culture and society.

Rather than ignoring these complexities, real estate researchers should embrace the study of consumer behavior to better understand the reasons behind market choices. Within appraisal, the sales comparison approach estimates the value of a property based on what consumers are willing to pay for individual components of the property. The study of consumer behavior examines why people value those components, which people value those components, and why preferences change over time. A review of the consumer behavior literature would suggest that buyer/seller attributes be explicitly considered in appraisal to determine market characteristics and the properties considered to have the same utility and amenities.

Attitudes, lifestyle, and tastes affect consumer preferences for space. Market analysts should not rely exclusively on census-based economic and demographic data from which they infer information about consumers contend that the incorporation of information about consumer attitudes, preferences, and perceptions into economic models of housing demand is critical to any reduction of the large margin of unexplained variance in housing consumption behavior.

The importance of the individual in the study of investments is reflected in the discussion of investment value. The value of a particular property to an individual investor reflects the investor’s unique situation with respect to such factors as taxes, investment objectives, financing opportunities, and the need for liquidity. Each person may vary as to level of risk aversion as well.

The incorporation of consumer behavior concepts into traditional real estate study in these and other areas will improve understanding of individual decision-making in a real estate context. This understanding will lead to better explanations and predictions in real estate markets and, as a result, greater success in the marketplace.