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Consumer Behavior Applications to Real Estate Education

Article  in  Journal of Real Estate Practice and Education · January 2003

DOI: 10.1080/10835547.2003.12091585

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Consumer Behavior Applications to Real
Estate Education
Karen M. Gibler* and Susan L. Nelson**

Executive Summary. Most real estate study is based on neoclassical economics.

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. This article presents a review of some consumer behavior concepts
relevant to real estate and suggests how these can expand real estate study.

Introduction
Most real estate study is based on neoclassical economic theory that assumes people
make rational economic decisions about renting and buying real estate as part of their
attempt to maximize utility. Most real estate researchers and educators do not examine
the human influences that real estate consumers have on real estate demand. Instead,
most real estate educators continue to approach the market from a production
orientation rather than a consumer marketing orientation. Analysts stratify real estate
markets by property types that are defined by physical construction rather than
consumer benefits. Property is valued based on physical attributes rather than
consumer perception of the space, atmosphere and linkages. However, residential and
other real estate customers such as retail tenants often consider nonfinancial,
perceptual factors in selecting a site (Smith, Gararino and Martini, 1992).

Rather than ignore the human element of decision-making, or put all aspects of non-
financial decision factors in a black box called ‘‘tastes and preferences,’’ real estate
students, teachers, researchers and practitioners can benefit from integrating the study
of consumer behavior with the economic approach to real estate. Greater knowledge
of real estate consumers and their behavior will lead to better understanding and
prediction of decision-makers’ actions in the real estate market. The purpose of this
article is to present some of the most common consumer behavior concepts and
explain how integration of consumer behavior theories and understanding improves
real estate study. The examples emphasize residential real estate; however, consumer
behavior concepts can assist in better understanding behavior in other real estate
sectors, the mortgage market and investment as well.

The Study of Consumer Behavior

Consumer behavior is the study of individuals, groups or organizations in obtaining,
using and disposing of products and services, including the decision processes that

*Georgia State University, Atlanta, GA 30303 or kgibler@gsu.edu.

**University of North Dakota, Grand Forks, ND 58202 or susanlnelson@und.nodak.edu.

63
64 Journal of Real Estate Practice and Education

precede and follow these behaviors (Engel, Blackwell and Miniard, 1995). Consumer
behavior examines not only consumers’ actions, but also the reasons for those
behaviors. On a macro level, marketers are interested in demographic shifts as well
as society’s values, beliefs and practices that affect how consumers interact with the
marketplace. On a micro level, consumer behavior focuses on human behavior and
the reasons behind these behaviors. Thus, concepts drawn from sociology and
psychology figure prominently in the study of consumer behavior. The following
sections describe these concepts as they are applicable to the development of an
increased understanding of real estate decisions in a consumer behavior context.

Consumer Choice and Decision-Making

Much of the study of consumer behavior focuses on consumer choice. Utility theory
in economics and attitude theory in social psychology have strong similarities and
constitute a basis for examining consumer decision and choice processes. Consumers
purchase products and services for the benefits derived from their use. While the study
of economics focuses on outcomes, consumer behavior emphasizes the process. Rather
than assuming perfect conditions, researchers of consumer behavior explicitly
recognize the impact of situational elements on behavior and the variance among
individuals faced with the same conditions.

Most real estate purchases and leases are considered high involvement goods1 that
require complex decision-making.2 Thus, the three major comprehensive models of
complex consumer decision-making (Nicosa, 1966; Engel, Kollat and Blackwell,
1968; and Howard and Sheth, 1969) would be applicable to most real estate decisions.
These models trace the psychological state and behavior of a consumer from the point
at which he or she perceives a need through the purchase and use of a product to
satisfy that need. The following sections examine some of the key elements of these
models: information search, evaluation of alternatives and decision rules.
Information Search. Consumers seek information to help them decide how best to
satisfy a need. Two well established theoretical perspectives of external information
search are the economic and psychological/information processing approaches. The
economic perspective examines search on a cost/benefit basis, with consumers
searching so long as the marginal benefit of obtaining an additional piece of
information exceeds the marginal cost. The psychological approach examines the
cognitive process consumers go through in deciding to search for information,
gathering information and processing the data gathered. The impact of consumer,
situational and product characteristics are considered (Schmidt and Spreng, 1996).

Consumers first check internally for information they already possess (Bettman, 1979;
and Punj, 1987). Depth of experience, length of time since last purchase and
satisfaction with previous purchases will affect the consumer’s reliance on internal
information (Kiel and Layton, 1981; and Engel, Blackwell and Miniard, 1995). As
most consumers purchase real estate infrequently, they rarely rely solely on past
knowledge when selecting a new property to purchase; rather they also undertake an
external information search.

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Consumer Behavior Applications to Real Estate Education 65

The effect of quantity of previous experience with real estate on the amount and type
of search undertaken appears to vary (Newman and Staelin, 1972; Kiel and Layton,
1981; Punj and Staelin, 1983; Beatty and Smith, 1987; Urbany, Dickson and Wilkie,
1989; Baryla and Zumpano, 1995; and Anglin, 1997). One the one hand, knowledge
can reduce search by allowing the consumer to rely more heavily on internal
information. Inversely, it can also encourage search by enabling more effective use of
newly acquired information. When consumers feel more confident about their ability
to judge products, they will typically acquire more information. This implies that there
may be an inverted-U relationship between knowledge and quantity of external search
(Bettman and Park, 1980; and Moorthy, Ratchford and Talukdar, 1997).

Consumers may obtain external information directly from personal inspection or from
other sources such as real estate brokers, newspapers, and friends and relatives (Clark
and Smith, 1979; Talarchek, 1982; and National Association of Realtors, 1989).
Consumers with extremely limited knowledge (such as first-time homebuyers or
interurban movers) rely heavily on personal sources such as friends, relatives and real
estate agents for information (Kaynak, 1985; and National Association of Realtors,
1990). Meanwhile, moderately informed consumers possess sufficient knowledge to
explore and understand more information, so they will undertake more extensive
external search on their own. Those consumers with the greatest knowledge of the
product and market may already possess all the information they need to make a
decision without a formal extended search of any type.

Experience may also affect what type of information is gathered. Experienced

consumers know which dimensions were useful in the past for comparing alternatives.
However, inexperienced buyers are more susceptible to external influences such as
real estate agents in determining what criteria they should use to select a property
(Hempel, 1969; and Bettman and Sujan, 1987).

A consumer’s beliefs and attitudes may affect external search. Some consumers enjoy
the shopping process more than others do and like searching for information (Punj
and Staelin, 1983; and Beatty and Smith, 1987). They will want to visit open houses
and inspect more properties before making a decision just because they enjoy the
process. This may help explain why Baryla and Zumpano (1995) found that visiting
more houses per week with a real estate agent was associated with longer search time.

Consumer search is also related to demographic characteristics (Beatty and Smith,

1987). For example, age is often negatively related to amount of information search
(Hempel, 1969; Clark and Smith, 1982; and Cole and Balasubramanian, 1993). This
may be reflective of the greater accumulated experience and knowledge as one ages
creating a reduced desire for additional information. Another characteristic that
appears related to the amount of search is education. Consumers that are more
educated usually search more, perhaps because of greater confidence in their ability
to undertake the search and use the information gathered effectively (Hempel, 1969).

Situational constraints on the consumer’s external information search include the

quantity and availability of information in the marketplace and time pressure on the
66 Journal of Real Estate Practice and Education

buyer (Beatty and Smith, 1987). The quantity and quality of information available to
real estate buyers varies by market. Many buyers may feel they lack access to
sufficient information to make an informed decision, as is evidenced by consumers
wishing they had access to more information even after having come to a decision
and purchasing a house (Burke, Belch, Lutz and Bettman, 1979; and Cahill, 1995).
Access to information within a market is not uniform. Buyers with uneven access to
information will search for differing time periods and with differing intensity. Real
estate buyers often rely heavily on real estate agents to provide them with market
information, making the agents gatekeepers who may influence the length of search
(Palm, 1976a, b; and Jud, 1983).

Time constraints are reflected in real estate decisions, for example, when a transferred
worker must find a home in a new city before starting work. Time constraints reduce
the extent of real estate information search (Baryla and Zumpano, 1995).

Product determinants that can influence the need for an external information search
include the variety and type of product features and the price. For example, if
consumers perceive few differences between various available properties, they are
likely to make fewer comparisons and view fewer properties. Innovative products such
as smart houses require consumers to acquire new information to evaluate these
products and features. The relatively high price of real estate creates concern about
the financial risks involved in the purchase and leads to greater search to reduce the
risk involved in evaluating and selecting an alternative (Kiel and Layton, 1981).

Information search provides consumers with an information base for making

decisions. The following discussion describes mechanisms by which consumers use
information in the evaluation of alternatives.
Evaluation of Alternatives. Searching the market for all possible alternatives is usually
impossible. The consumer must place limits on the alternatives considered. Models
of individual housing decision-making usually involve two or three stages: the
decision to move, the selection of a destination and the selection of a particular home
(Brown and Moore, 1970; Speare, Goldstein and Frey, 1975; and Wiseman, 1980).
Talarchek (1982) and Cahill (1994) found movers use a two-stage sequence of
information gathering. First, the mover gathers information on broad-based
environment and location variables to narrow down geographic areas for
consideration. Then the mover gathers information on individual housing unit
variables.

The reduced set of alternatives from which the consumer makes a choice is known
in consumer behavior as the consideration or evoked set (Engel, Blackwell and
Miniard, 1995). The consumer must determine what criteria to use in evaluating the
alternatives in the evoked set to make a final choice. Some criteria are more salient
than others and those attributes will have a greater impact in determining consumer
selections (Engel, Blackwell and Miniard, 1995). Real estate researchers wanting to
identify salient attributes have turned to surveys of recent homebuyers, retail tenants
and corporate real estate executives (Kaynak and Meidan, 1980; Freiden and Bible,

VOLUME 6, NUMBER 1, 2003

Consumer Behavior Applications to Real Estate Education 67

1982; DeLisle, 1984; Kaynak, 1985; Smith, Garbarino and Martini, 1992; and
Bergsman, 1993). The varied lists and importance rankings of attributes across
different cities indicate the difficulty in identifying a uniform set of attributes that can
be used in determining the value of real estate across all markets. This reinforces the
need to better understand local markets and the salient characteristics to consumers
in each market.

Although a criterion may be salient in a product selection, if the consumer perceives

that all alternatives in the evoked set are equal on that criterion, then it is not relevant
in choosing among alternatives. If, for example, the consumer believes all
neighborhoods in the city offer equally good schools, then even though school quality
is a very important characteristic, it may not be a deciding factor in which house to
buy. Salient attributes that actually influence the evaluation of alternatives are known
as determinant attributes (Alpert, 1971). The particular determinant attributes
consumers use to make their selection may depend on situational influences, similarity
among choices, motivation and knowledge (Engel, Blackwell and Miniard, 1995).

The situation in which a decision is made or the situation in which a product will be
used may influence the attributes used in making the selection. For example, a
homebuyer making the purchase decision alone may use a different set of criteria than
a buyer who is making the decision as part of a family. A buyer may evaluate
properties differently depending on whether he is purchasing a house to occupy
himself, furnish for his parents or rent to a tenant.

Decisions involving widely disparate alternatives (a single-family detached house, a

mobile home in a trailer park and a houseboat moored at a dock) require the consumer
to use criteria that are more abstract to evaluate the alternatives (Johnson, 1984, 1989;
Bettman and Sujan, 1987; and Corfman, 1991). The more similar the options, the
more the consumer can rely on concrete criteria and price to make comparisons. Thus,
identifying and valuing the attributes used by buyers in comparing tract housing is
easier than those used by decision-makers choosing custom homes. To further examine
the means by which consumers make choices among alternatives, the following
section discusses various types of decision rules that consumers use in arriving at
final decisions.
Decision Rules. Consumers may be limited in their ability to determine the optimal
choice based on all the salient characteristics (Capon and Kuhn, 1982). They may use
simplified methods for comparing alternatives on a limited number of determinant
characteristics. One way to simplify the process is to use noncompensatory decision
rules. With such rules, consumers use cutoffs to qualify products, such as setting a
price range and minimum size to consider. If a property does not possess the minimum
required on one important attribute, then it will not be considered despite its
attractiveness on other standards. Two commonly used noncompensatory decision
rules are the conjunctive rule and the lexicographic rule.

With a conjunctive decision rule, the consumer sets minimum acceptable levels on all
important attributes and eliminates any alternative that does not meet all the
68 Journal of Real Estate Practice and Education

minimums. If only one property meets all the minimums, then the consumer will
select it. If several are acceptable, then the consumer has narrowed down the choices
and can either raise the cutoffs or use another decision rule to make the final choice.
If none of the properties meets all the cutoff requirements, the consumer must either
change the acceptable minimums or change the decision rule (Grether and Wilde,
1984). For example, Louviere and Henley (1977) found that a rental apartment with
too high a price, too far a distance from the university or too low quality would not
be considered by college students no matter how highly the apartment rated on the
other two criteria.

With a lexicographic rule, the consumer ranks the determinant attributes in order of
importance. If one property is better than all the others on the most important attribute,
then the consumer selects that property. If the consumer perceives two or more as
equal on the most important criterion, then the properties are compared on the second
most important determinant attribute. This process continues until the tie is broken
(Engel, Blackwell and Miniard, 1995). For example, a buyer may decide that the
school district is the most important criterion and yard size is second most important.
If only one house is for sale in the preferred district, then the buyer would select that
house no matter what is available in other districts. If two houses were for sale in the
district, then the buyer would choose the house with the larger yard.

Another type of decision rule is the compensatory decision rule. With a weighted
additive compensatory decision rule, the consumer identifies all the determinant
attributes for the product being considered, assigns importance to each attribute, then
rates all the alternatives on each attribute, and selects the alternative that generates
the highest summated weighted score (Engel, Blackwell and Miniard, 1995). This
model has many similarities to the multi-attribute attitude model that is discussed
later. When using this compensatory decision rule, the alternatives are evaluated
holistically. Strengths in one area can offset weaknesses in another. A large house in
the second best school district might be equally attractive to the buyer as a small
house in the best school district. This type of decision rule, however, assumes the
consumer has the knowledge and ability to identify determinant attributes, rank them,
score the alternatives and calculate a relatively complex answer. The reality may be
that a consumer makes a less than optimal decision because of incomplete information
or an inability to complete the complicated comparison. This is an area in which
brokers, if they understand consumer decision rules, may be able to assist buyers.

Consumers may use a combination of decision rules in choosing a product, first

simplifying the decision by narrowing down the choices with a noncompensatory rule,
then using a compensatory process to make the final choice. Dibb (1994) suggests
that homebuyers use such a sequential decision strategy. First, they apply a
noncompensatory decision rule to eliminate properties that do not possess the
minimum requirements on primary issues such as price, size and location. Then they
use a compensatory rule to evaluate each property across a wide range of secondary
criteria.

While all consumers follow the general decision-making models in gathering

information, evaluating alternatives, and choosing a product, their individual behavior

VOLUME 6, NUMBER 1, 2003

Consumer Behavior Applications to Real Estate Education 69

within this process is greatly influenced by differences among individuals. These

differences can be categorized as either internal or external determinants of consumer
behavior. The following sections describe some of the most influential internal and
external factors that affect consumers in the decision-making process.

Internal Determinants of Consumer Behavior

Each consumer possesses a unique combination of mental and emotional
characteristics. This section focuses on several established consumer behavior
classifications of these internal characteristics, including motivation, attitudes,
perception, personality, self-concept and lifestyle.
Motivation. Motivation is a need arousing a drive for a consumer to take action in an
attempt to reach a goal (Engel, Blackwell and Miniard, 1995). Needs arise from the
discrepancy between actual and desired states of being. Wants refer to specific
products that consumers believe will satisfy the need (Foxall and Goldsmith, 1994).
Needs can be classified as utilitarian or hedonic/experiential. Utilitarian needs lead
to consideration of objective product attributes or benefits, whereas hedonic needs
elicit subjective responses, pleasures and aesthetic considerations (Holbrook and
Hirschman, 1982; and Havlena and Holbrook, 1986). It is common for consumers to
try to fulfill both utilitarian and hedonic needs in a single purchase (Srinivasan, 1987).
Thus, when a couple has children, they may decide to buy a single-family house both
to give the family more room than found in an apartment and to satisfy an emotional
desire to put down roots. A valuation of property based on solely physical attributes
may fail to capture the value the buyer places on the ability of the property to satisfy
nonfinancial and nonphysical needs such as the desire for permanence. A more
complete real estate valuation model will incorporate the psychological benefits the
property is providing as well as the physical and financial benefits.

As the discrepancy between the desired and actual state of being increases, a condition
of arousal called a drive is activated. Some of the more common drives that trigger a
housing move include: neighborhood deterioration, change in employment, increase
or decrease in income, preference for ownership, change in stage of family life cycle,
family growth and declining health (Brown and Moore, 1970; Lyon and Wood, 1977;
Yee and Van Arsdol, 1977; Hempel and Jain, 1978; Boehm and Mark, 1980; Clark
and Onaka, 1983; McHugh, 1984; and Litwak and Longino, 1987). Some real estate
moves result from being pushed out of current space, while others result from being
pulled to a new location. The difference between the current and potential situation
encourages the resident to move (Clark, Knapp and White, 1996). The decision to
move in real estate is often portrayed via a stress model with stress specified either
as psychological or economic (Onaka and Clark, 1983). The models attempt to
identify the point at which the discrepancy between desired and actual states becomes
great enough that the perceived benefits of moving exceed the perceived costs (Brown
and Moore, 1970; Speare, 1974; Huff and Clark, 1978; and Fokkema and Van Wissen,
1997).

Sometimes consumers are willing to endure a wide discrepancy between their desired
and actual real estate holdings because of emotional or psychological complications.
70 Journal of Real Estate Practice and Education

For example, a retired homeowner may prefer a house with a smaller yard, but does
not want to give up the memories associated with the family home. The consumer
must overcome cumulative inertia as well as psychological and social attachment to
the house and neighborhood to make a change (McGinnis, 1968).
Attitudes. An attitude is an overall evaluation about something that combines cognitive
beliefs, emotional affects and behavioral intentions (Engel, Blackwell and Miniard,
1995). Attitudes may vary in terms of strength, direction (positive or negative) and
stability (Eagly and Chaiken, 1993). In addition, not all attitudes are held with the
same degree of confidence (Berger, 1992). Attitudes based on direct experience with
a product are usually held with more confidence than those derived from indirect
experience. Confidently held attitudes will usually be relied on more heavily to guide
behavior (Fazio and Zanna, 1978; and Berger, 1992). Consumers are more likely to
search for additional information before making a decision if they do not feel confident
in an attitude. Attitudes held with less confidence are also more susceptible to change.
Given this, it would be expected that experienced real estate consumers have
developed stronger attitudes about property types, locations and investment values
than have first-time buyers. They should be better able to articulate specific
preferences and appear more logical in their real estate decision-making processes
because they would be acting in accordance with strongly held beliefs. Relatively
inexperienced buyers are likely to hold weaker opinions and be more easily swayed
by salespeople.

One of the most widely accepted frameworks of the relationship between attitudes
and consumer behavior is the Extended Fishbein model, also known as the Theory of
Reasoned Action (Ajzen and Fishbein, 1980). This model states that behavior is best
predicted by intention. Intention is a function of a person’s attitude toward a behavior
contingent on subjective norms that influence the behavior. Attitudes develop from
beliefs about the favorableness of a behavior and the strength of those beliefs. The
model stresses subjective perceptions and evaluations of behavioral consequences
rather than objective measures. This is an expansion from the original multi-attribute
model that calculated a summated weighted attitude score based on salient attributes,
importance weights and beliefs about alternative products. A compositional attitude
model has been used by Lindberg, Garling and Montgomery (1988, 1989) in modeling
housing preference and choice, finding that preferences may be best predicted by a
modified multi-attribute utility model, but choice may actually rely on the use of
heuristics.

Two consumers may use the same attributes to evaluate real estate choices, but have
different beliefs about property features and those features’ ability to satisfy their
needs. One consumer may believe that a two-story house design provides better
separation of living and sleeping areas while another may believe a one-story design
is better. Thus, one consumer would value the two-story house more highly and
another would value the one-story house more highly even though having separate
living and sleeping quarters is an important attribute to both.

Nelson and Rabianski (1988) recognized that the value of single-family housing is a
function of demographic, economic and psychographic characteristics of the

VOLUME 6, NUMBER 1, 2003

Consumer Behavior Applications to Real Estate Education 71

consumer. They identified housing market segments that were defined in terms of
differences in the relative importance of various criteria. Housing can be classified
into major types through the clustering of alternatives seen by most probable buyers
as providing similar use, not necessarily the most physically similar properties. In
appraisal, this would lead to setting the value for adjustments on the beliefs of similar
consumers, such as through surveys of recent buyers (Kroll and Smith, 1988). The
physical and psychological factors that may affect the perception of product attributes
by the most probable buyers should also be considered (DeLisle, 1985).

Whether a positive attitude leads to an intention to purchase a product and,

subsequently, to its actual purchase depends on several factors. Attitudes and
intentions are more likely to be good predictors of behavior when they are measured
relatively close to the time when the behavior is to occur, before situational influences
and unexpected events can have an impact (Cote, McCullough and Reilly, 1985).
Thus, the question ‘‘Do you plan to move in the next three months?’’ will be a more
accurate predictor of behavior than ‘‘Do you expect to move in the next three years?’’

The level of social pressure present in the purchasing situation also affects whether
consumer behavior will be consistent with attitudes (Ajzen and Fishbein, 1980). While
a homebuyer may dislike yard work, the social pressures to raise children in a house
with a yard may interfere with the otherwise preferred purchase.

Another limitation to acting in congruence with attitudes is whether a consumer has

volitional control, that is, whether the person can perform the behavior at will (Ajzen,
1991). A consumer may want to purchase a property, but need a lender to agree to a
mortgage. Discrimination may also limit a consumer’s ability to purchase a preferred
property. Thus, real estate researchers must attempt to identify as many of the
constraints facing the consumer as possible to accurately understand and predict
behavior. In addition, the researcher should ask not only about a consumer’s attitude
toward a product, but the consumer’s intention to purchase the product. This takes
into account the price and social pressures that might inhibit a consumer from
purchasing the preferred product.
Perception. Perception deals with recognizing, selecting, organizing and interpreting
stimuli to make sense of the world (Solomon, 1996). Consumers tend to use perceptual
filtering whereby they only pay attention to stimuli deemed relevant to existing needs,
wants, beliefs and attitudes and disregard the rest (Janiszewski, 1993). For example,
when someone decides to move, the person will suddenly notice properties that may
have been on the market for weeks, whereas someone who is not interested in moving
may not even notice advertisements of properties for sale or rent.

An additional element of filtering relates to maintaining cognitive consistency or the

tendency to perceive stimuli so that they do not conflict with basic attitudes,
personality, motives or aspirations. Thus, people often see and hear only that which
is consistent with what they already believe. For example, a potential buyer’s decision
about a property is often made based on just the initial impression of the exterior of
the building. If the initial impression is positive, the potential buyer is likely to notice
72 Journal of Real Estate Practice and Education

all the good features inside the building that reinforce his initial perception and desire
to like the property. Real estate agents have long been aware of the importance of
curb appeal, which is a prime example of the impact of cognitive consistency.

When a consumer pays attention to a stimulus, he or she attaches meaning to it. The
exact meaning a consumer assigns to a stimulus depends on how a stimulus is
categorized and elaborated into beliefs and attitudes in relation to the consumer’s
existing knowledge. Nasar (1989) found that people use housing architectural style to
infer the friendliness and status of its residents. However, these interpretations varied
with age, gender and social class. Thus, valuation of individual properties will vary
among individuals because of their different perceptions of the same physical
attributes. As was also noted in the discussion of motivation, to properly value
attributes the appraisers need not just the objective description of property attributes,
but also the perception of those attributes by potential buyers.
Personality and Self-concept. Personality accounts for consistent patterns of individual
behavior based on enduring psychological characteristics (Kassarjian, 1971). It is the
pattern of traits and behaviors that makes each individual unique. Personality appears
to be related to several aspects of consumer behavior, including adoption of
innovations, information gathering and decision-making (Foxall and Bhate, 1993).

Consumers with risk-taking personalities are more likely to purchase innovative

properties and investments. They are likely to move more frequently and consider a
wider range of housing options. Their main goal in life is success while risk avoiders
want happiness. Their purchases are expected to reflect these different goals.

People who have a high need for cognition enjoy the effort of information-processing
activities and may actively seek and consider more information about a property
before making a purchase. These consumers will want to visit more houses before
buying.

Some consumers are more self-monitoring, that is, external forces influence them less
than others (Snyder, 1979). These consumers are more likely to rely on their own
knowledge, experience, and opinions and less on salespeople in making decisions.

Self-concept is an organized set of perceptions of the self consisting of such elements

as the perceptions of one’s characteristics and abilities; the perception of oneself in
relation to others; and objectives, goals and ideals that are perceived as either positive
or negative (Rogers, 1951). Self-concept is generally viewed along several dimensions:
ideal self (what one aspires to be), real self (what one thinks one actually is), self in
context (how one sees oneself in different social settings) and extended self
(possessions and artifacts that help define who one is) (Walker, 1992).

Consumers purchase products that are consistent with the actual self or that are
expected to help achieve the ideal (Sirgy, 1980, 1982). Identity may also be reflected
in both choice of housing style and neighborhood (Hayward, 1975). For example,
residents of Denver who considered themselves ‘‘city persons’’ were more likely to
currently live and plan to live in the city (Feldman, 1990).

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Consumer Behavior Applications to Real Estate Education 73

Possessions may take on characteristics far beyond their utilitarian features; therefore,
people may develop deep and complex attachments to them (Belk, 1988). A house
can be a viewed as part of the extended self, an object that helps to form identity and
present that identity to the world (Cooper, 1974; Hayward, 1977; Csikszentmihalyi
and Rochberg-Halton, 1981; and Sadalla, Vershure, and Burroughs, 1987). By their
very nature, single-family homes usually perform many highly emotional,
individualized and personal roles in the lives of their occupants (Downs, 1989). A
house being purchased to serve as a ‘‘home’’ is being evaluated for not only physical,
but also social and psychological characteristics (Hayward, 1977). The house and
household objects frequently become an element in an individual’s personal identity
as symbols of experiences and relationships, providing a continuous sense of identity
over time (Csikszentmihalyi and Rochberg-Halton, 1981; Hummon, 1989; and
Somerville, 1997). A woman’s self identity appears to be more intimately linked to
the home than a man’s in our society (Somerville, 1997).
Lifestyle. Lifestyle refers to the distinctive ways in which consumers live, how they
spend their time and money, and what they consider important—activities, interests
and opinions. Lifestyles evolve over time, so corresponding consumption patterns may
change as well (Kelly, 1955; and Reynolds and Darden, 1974).

As lifestyles change, the value of various property attributes to consumers will change.
For example, the popularity of casual entertaining will reduce the value of houses
with square footage devoted to formal living rooms rather than family or great rooms
(Ahluwalia, 1996). The trend toward working at least part-time from home will
increase the value of home office space. Lifestyle may also affect tenure choice in
that residents who like to be mobile are more likely to rent (Boehm, 1981).

Lifestyles vary within the population, creating submarkets that place greater value on
certain attributes that support their activities. These differences offer yet another
example of why the traditional appraisal method of dividing markets into physical
property types may not be sufficient to accurately identify the groups of properties
from among which a consumer is choosing. Builders will profit if they identify the
lifestyle trends and design property accordingly. Real estate sales agents will work
more efficiently if they identify and show only the houses appropriate to the potential
buyer’s lifestyle.

This section has described internal consumer characteristics that influence consumer
behavior as related to real estate decisions. Internal characteristics reflect and are
reflected in a variety of external determinants of behavior. For example, cultural
differences influence lifestyle patterns. The following section is an examination of
these external determinants of consumer behavior.

External Determinants of Consumer Behavior

Consumers do not live or make decisions in isolation. The values, beliefs and opinions
of those who surround the consumer affect decisions concerning real estate. Among
the external influences on consumers are culture, social class, reference groups and
family.
74 Journal of Real Estate Practice and Education

Culture. Culture consists of a society’s beliefs, values, customs, shared meanings,

rules, rituals, norms, traditions and artifacts (Solomon, 1996). Values are shared,
enduring beliefs about life and appropriate behavior (Schiffman and Kanuk, 1997).
Values express the broad goals that motivate people and appropriate ways to attain
these goals. The values that dominate a nation define its national character. Some
enduring American core values include achievement and success, activity, efficiency
and practicality, progress, material comfort, freedom and individualism (Arensberg
and Niehoff, 1980).

The influence of these cultural values is evident in the American real estate market.
Ownership of a single-family detached house with yard represents independence and
success, especially among males (Rakoff, 1977; and Somerville, 1997). Even an
elderly homeowner in poor health may be reluctant to give up a single-family house
because it may publicly signify a movement to a less-valued status in our society
(Steinfeld, 1982; and Hummon, 1989). Consumers want to express their individualism
through custom homes (Mogelonsky, 1997). Cultural norms that affect real estate
demand include the standard in the United States that each child in a family should
have a private bedroom, but can share a bath. Cultural rituals such as formal holiday
dinners create demand for a formal dining room.

While generally stable, values do shift over time. For example, a growing number of
Americans share a set of values based on environmentalism, feminism, global
awareness and spiritual searching. These consumers tend to buy existing houses in
established neighborhoods that they remodel to fit their preferences for privacy, natural
surroundings and eclectic interior decorating (Ray, 1997). Changing values create a
challenge for builders to provide products that will reflect consumers’ preferences in
the coming years.

Within the broader society, subcultures exist. Subcultures are racial, ethnic, religious
or other groups whose members are distinguishable from the general population and
who are held together by a common culture (Assael, 1992). Major subcultures in the
U.S. include Asian-Americans, African-Americans and Hispanics, as well as religious
sects. Builders wanting to appeal to members of subcultures should understand how
their differing beliefs affect their real estate preferences. For example, some Asian-
Americans are sensitive to location and shape of a lot and structure as these affect a
home’s chi, an invisible energy current that is believed to bring good or bad luck. A
home can bring good feng shui by rounding curves to bring gentle chi, which travels
on a curved path while stopping harmful chi that travels in a straight line (Fost, 1993).
A home without the proper design elements would have to be altered to be an
acceptable real estate alternative (Dumfries, 1995).
Social Class. Social stratification represents the hierarchical division of members of a
society into relative levels of prestige, status and power (Rossides, 1990). Nine
variables have emerged from the research as most important in determining social
class: the economic variables of occupation, income and wealth; the interaction
variables of personal prestige, association and socialization; and the political variables
of power, class-consciousness and mobility (Gilbert and Kahl, 1982). At least a three-
level stratification occurs in American society (Coleman, 1983).

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Consumer Behavior Applications to Real Estate Education 75

While upward and downward mobility is possible, most Americans tend to remain in
the stratum into which they were born (Tyree and Hodge, 1978). Those in the same
stratum socialize with each other and have roughly similar lifestyles and consumption
patterns. Most consumers say they would prefer to live in the neighborhood they
perceive has the most social status, but constraints force them to live among people
of their own social status whom they perceive to be friendlier (Hourihan, 1979).
Coleman (1983) found that status aspiration and class identification guide
neighborhood choice, then income controls the selection of a home. Housing acts as
a symbol of class membership (Rakoff, 1977; Hummon, 1989; and Somerville, 1997).
Homeownership is perceived as upward mobility in all classes (Hareven, 1991).

Developers and builders should be aware of social class structure and preferences in
designing houses and neighborhoods to ensure that they will appeal to the expectations
and self-image of members of the targeted social class. Architectural designs must
reflect what members of the group would expect in their type of neighborhood (Nasar,
1989). For example, a fireplace acts as an index of the social value of a dwelling and
the social rank of its occupants (Lawrence, 1989). Other signals include the types and
arrangements of interior decorations (Laumann and House, 1970; and Pratt, 1982) and
landscape design (Duncan, 1973). Some members of the upper class want
‘‘interesting’’ neighborhoods, leading to gentrified inner city communities and
‘‘charming’’ places in the country (Coleman, 1983).
Reference Groups. Reference groups are individuals or collections of people that a
consumer uses as a point of comparison for attitudes, beliefs, values or behavior
(Engel, Blackwell and Miniard, 1995). Consumers belong to some of the groups that
influence their consumer behavior and either aspire to join or try to avoid association
with others. Some of these groups are formal groups, such as the American Real
Estate Society, and others are simply informal groups of friends. Subcultures, social
class and families can be influential reference groups as well. The level of influence
a particular reference group has on a consumer depends on cultural pressures, fear of
deviance, commitment to the group and group unanimity, size and expertise (Solomon,
1996).

Reference groups affect consumer choice in three principal ways: normative

compliance, value-expressive and informational influence (Engel, Blackwell and
Miniard, 1995). Normative influence is reference groups affecting behavior through
pressure for conformity and compliance. This influence is most likely when there is
strong motivation for social acceptance (Bearden and Rose, 1990) and the product is
publicly conspicuous in its purchase and use (Miniard and Cohen, 1983), such as real
estate. Value-expressive influence is the effect when a consumer needs psychological
association with a group and therefore conforms to its norms, values and behaviors.
Consumers hope to enhance their image in the eyes of others and identify with the
group through their purchases. As an informational influence, consumers often accept
the opinions of others in the group as providing credible evidence about products
(Burnkrant and Cousineau, 1975). Research consistently demonstrates that personal
word-of-mouth influence has a more decisive role in influencing behavior than
advertising and other marketer-dominated sources (Herr, Kardes and Kim, 1991)
76 Journal of Real Estate Practice and Education

because of greater perceived credibility. Research has shown that word-of-mouth

communication is an important source of information for real estate buyers (Hempel,
1969; Johnson, Salt and Wood, 1974; and Burke, Belch, Lutz and Bettman, 1979).

If real estate developers, investment bankers and brokers can identify the most
important reference groups influencing real estate purchases, they can design and
market their products in ways that assure consumers that the real estate purchase will
be accepted and approved of by these group members. Testimonials by experts that
express support for a builder or community will boost sales. So will slice-of-life
advertisements that describe current community residents as a group to which other
buyers would want to belong, such as successful businesspeople, wise investors or
family-oriented parents who are involved with their communities and schools.
Family. The family is often the most influential reference group (Schiffman and Kanuk,
1997). The family teaches the consumer cultural values that have a substantial impact
on shopping behavior. The family continues to act as a point of reference even when
the individual has formed a household.

In addition, the family unit, rather than the individual, purchases many products such
as housing. Family members may be involved in real estate decision-making as
gatekeepers, influencers, deciders, buyers and users (Engel, Blackwell and Miniard,
1995). Thus, all the family members may be involved in a real estate decision in some
fashion. In such situations, identifying the proper family member to interview to obtain
complete and accurate information regarding a real estate decision can be difficult.

The role structure of the husband and wife in consumer decision-making varies with
the type of product, stage in decision process and nature of the situation. Changes in
family structure have resulted in increasing joint husband and wife decisions,
including those about housing and financing (Cunningham and Green, 1974; Davis
and Rigaux, 1974; Hempel, 1974; Munsinger, Weber and Hansen, 1975; Park, 1982;
Hopper, 1995; and Mohan, 1995). However, within the overall real estate decision,
one spouse may have more influence over some aspects such as price or style. Thus,
the real estate builder and broker must appeal to both spouses while recognizing that
each may be more interested and more influential on certain aspects of the decision.
This complication is reflected in Okoruwa and Jud’s (1995) findings that married
buyers tend to be less satisfied with brokerage services.

Families change over time, passing through a series of stages called the family life
cycle (Wells and Gubar, 1966). The traditional family pattern has been single, then
married, married with children, empty nest, retirement and widowhood. These stages
in the family life cycle have closely paralleled the demand for housing types: rental
apartment, starter home, move-up single-family home, independent retirement
housing, and supportive apartment. Changes in household and family structure have
resulted in many people no longer following the traditional process, living with parents
longer, delaying marriage, having children out of marriage, divorcing and remarrying
(Engel, Blackwell and Miniard, 1995). This creates demand for a wider variety of
housing options throughout the life cycle. It also creates difficulty in estimating

VOLUME 6, NUMBER 1, 2003

Consumer Behavior Applications to Real Estate Education 77

demand for housing types based on demographic factors. For example, Timmermans
and van Noortwijk (1995) found housing preference patterns among divorcees to be
different from other population groups.

Conclusion
A significant portion of the study of real estate deals with the consequences of
consumer decisions regarding real estate assets and services. Appraisal attempts to
estimate the value of property to consumers. Market analysis attempts to predict
consumer demand for real estate services. Investment analysis must determine the
required rate of return to an investor. Finance analyzes consumers’ mortgage choices
and expected repayment pattern. Brokerage studies the transactions between buyers
and sellers. All of these elements of real estate study stand to benefit from a better
understanding of consumer behavior.

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 has a distinctive personality and
attitudes, yet is similar to other consumers exposed to the same external influences of
culture and society. Rather than using simplifying assumptions to ignore these
complexities, real estate educators should embrace the study of consumer behavior to
better understand the reasons behind market choices.

The relevance of consumer behavior to real estate studies is best accepted, perhaps,
in the areas of development, brokerage and leasing. These segments of the real estate
discipline have traditionally had the closest ties to the consumer. Still, real estate
transactions are often modeled as solely economic transactions.

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 which people value what components and
why preferences change over time. Buyer attributes can be explicitly considered in
appraisal to determine properties considered as having the same utility and amenities
(Ratcliff, 1965, 1972).

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 (Rabianski, 1995). Incorporating
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 (Megbolugbe, Marks and
Schwartz, 1991).

While this article serves as an introduction to consumer behavior applications to real

estate study with an emphasis on residential real estate and homebuyers, the concepts
are equally valuable to the study of other types of real estate and other decision-
making situations. For example, the value of a particular property to an individual
78 Journal of Real Estate Practice and Education

investor reflects the investor’s unique situation with respect to such factors as taxes,
investment objectives, financing opportunities, need for liquidity (Corgel, Smith and
Ling, 1997; Lusht, 1997) and risk aversion.

The incorporation of consumer behavior concepts into traditional real estate study in
these and other areas will improve the 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.

Endnotes
1. Involvement is the level of perceived importance of a product or service to an individual
consumer (Engel, Blackwell and Miniard, 1995).
2. Consumer decision complexity ranges from habitual problem solving to extended problem
solving. Habitual decisions are routinely made with very little time or cognitive effort devoted
to the decision. Extended problem solving is more complex, takes more time and effort to
come to a decision (Engel, Blackwell and Miniard, 1995).

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