Behavioral research in real estate: A search for the boundaries

Journal of Real Estate Practice and Education, 2003 by Black, Roy T, Brown, M Gordon, Diaz, Julian III, Gibler, Karen M, Grissom, Terry V

Executive Summary. This article examines the growing body of behavioral literature in real estate. The emerging view of real property experts as problem solvers bounded by cognitive limitations is reviewed. Normative versus descriptive processes are presented as are potentially biasing heuristics and the role of feedback. In separate sections, the authors explore avenues of potential real estate research and methodologies in finance and traditional economics, expert decision making, marketing and markets, spatial analytics, organizational behavior and development, and the legal and regulatory environment.

Introduction

Academic and professional real property research in the United States has finance as its primary focus, and the real estate asset is most often treated as a financial asset. There are several reasons for this concentration, including the alliance of U.S. real estate programs with finance following criticism of academic real estate programs by the Ford and Carnegie reports in the 1950s. While the link to finance has proved to be a beneficial one that has produced much quality research, it has also resulted in the setting of artificial boundaries on real estate research. Real estate programs patterned after the Built Environment programs in the United Kingdom have not been as severely restricted, but have a broader focus, being located often outside business schools.

The authors take a broader look at real property assets and propose the lowering of disciplinary boundaries. If every real property problem is seen as a finance problem, researchers miss the opportunity to use tools and thoughts from other disciplines. As the old saying goes, "If the only tool you have is a hammer, then every problem is a nail." There is a rich body of knowledge in other disciplines, and the authors suggest the real estate asset as the center of a domain that borrows from other disciplines to further understanding. Diaz (1993) argues that real estate does not need paradigms to define its body of knowledge and its research effort. While paradigms help to focus research, they can also limit it. Real property is logically the focus of research and interest because of its immense importance in human affairs.

Within business schools, management and marketing are also disciplines with which real property programs could be aligned. Architecture and engineering are disciplines representing the physical realm of real property, but of course are taught separately due to distinct bodies of knowledge and professional licensing requirements. Law clearly deals with many subjects, but has a well defined area of research, cases, statutes and regulations dealing with real property. Planning covers the public policy and administration aspects of land use, but is also outside real property programs. In the U.S. it is usually aligned with architecture. Exhibit 1 shows a theoretical (and undoubtedly incomplete) representation of the domain of real property and its overlap with other disciplines.

One uniting factor of all these disciplines (finance included) is that they ultimately derive their existence from human behavior. Cash flows are created by the actions of human beings making decisions to consume space over time. Financial assets must be subjected to the management process to achieve the desired goals of owners, renters and other consumers of the space. Owners must engage in marketing research about human activities to make the real property assets productive. Society must place boundaries on human behavior with respect to land and set up rules and procedures to resolve land disputes. Architects cannot design effective and profitable space without knowing how human beings will interact with their built environment. To build on the previous reference to finance, finance research in real estate will be richer if researchers go behind the cash flows to see how and why they are created through the real property medium. Exhibit 2 depicts the thought process.

This article consists of six sections, reflecting the views of the authors on the behavioral aspects of real estate. The first section entitled Behavioral Research into Real Estate Expert Decision Making by Julian Diaz III chronicles the progress of what has been to date the most traveled path of behavioral research in real estate: expert behavior. The next section by Karen M. Gibler, entitled Consumer Behavior Decision Making Theory and Models explores the links between consumer behavior, traditionally a marketing field, and real property. The section entitled Traditional Economic, Finance and Real Estate Decision Models by Terry V. Grissom looks into the past of classical economics to make the case that much of economics is behavioral in nature, and theories and practices can be directly applied to research on the real property asset. The next section entitled Real Estate as a Cognitive Tool: Networks of Space and Communication Behavior by M. Gordon Brown links corporate real estate with spatial analytics. The section entitled Corporate Real Estate and Organizational Behavior by Roy T. Black looks into the links between organizational behavior, a management discipline, and corporate real estate. The following section entitled Law and Real Estate also by Roy T. Black shows that while real estate law is an obvious distinct body of knowledge, real property researchers should not abandon the field to attorneys and legal scholars.