Residential Real Estate Investments: The Behavioral Impact of Building Aesthetics

This is the first paper to examine the behavioral value impact of residential real estate aesthetics on investments. The unique feature of this study is the combination of cognitive science, aesthetics and behavior in the field of real estate. The results have a potential impact on the way professionals should evaluate investment options as well as on the way investments should be presented in order to get the highest possible price.Real Estate, in contrast to most other investments, has a clear physical component. On the one hand the physical appearance of a building transports lots of information that can be directly evaluated on a financial basis, for example structural integrity or maintenance backlog. On the other hand every building has certain aesthetic properties that cannot be directly linked to the buildings value or price. In general the design of a product can induce psychological reactions with cognitive and emotional content (see Bloch 1995) and can also influence the consumer’s quality of life (see Crilly et al. 2004). Therefore product evaluation from a consumer’s point of view should also be affected. In theory an investor who was able to include aesthetic aspects into his financial considerations should be unaffected in his decision if shown pictures of the product in question. That means under the assumption of certainty two buildings with identical cashflows and location (only possible in theory) should have the exact same value no matter their aesthetics. If investors are willing to pay more for one building than the other in the presence of pictures it would be proof that building aesthetics not only affect consumers but also investors. In addition it would either suggest irrational behavior in the presence of building pictures or the transportation of implicit information through building pictures that goes beyond basic financial data. In order to get reliable results this paper distinguishes between different categories of real estate professionals and professional and private investors. Each individual’s inclination towards aesthetics will be taken into account as well. Since every person necessarily has at least some connection with residential real estate and therefore a certain form of experience, this asset class seems to be the ideal research object.