Shelter is one of the basic human needs. Investing in houses is currently doing well for investors in house markets since individuals, firm e. t. c. need houses for very many reasons that comply with their needs. The increase in population growth is a major reason for the growth of house markets, since the demand for housing increases with the increase of number of people in the economy. The microeconomics of buying and selling in house markets deals with, or is about the individuals or firm doing the business (investors) and the consumers’ buying behavior or habits. The microeconomics lingers the demand and supply for both the consumers and the housing business. (Kreps, David M. 2013)
Home or house ownership
Consumers have their own reasons, some similar and others different, of purchasing a house. The whole process of buying a home appears simple when one has a good reason of buying a house. Some of the reasons are; ownership pride. Here, one gets the freedom to put his or her house the way he or she feels like. Being the owner, you can paint your house with any color, raise the volume of your CD player to any level, and decorate it the way you want and many more. One becomes his or her own boss. (Great Britain. 2007)
Another reason is because of the appreciation of the real estate. Sometimes you find it up, sometimes down, the real estate moves in cycles. People buy a house or home because of the appreciation to help them to be on better side, incase of inflation. Deductions in mortgage interests, also gives individuals a reason to buy a home or house because the tax favors homeowners. Real estate properties are recommendable when one is buying because of the tax deductions on the properties. The taxes are fully deducted for the first time home buyers because of income tax purposes. This makes it a good reason for people to be attracted into buying homes. (Levy. 1993)
The other reason as to why individual or firm may buy houses is because of the exclusion of capital gain, where one can buy and later sell the house after let’s say two years, and then pocket all the profit without being taxed. One may also get attracted into buying a home because of the preferential tax treatment. Here, a person or firm is entitled to enjoy all the profit which is considered a capital asset as long as he or she owned the house for more than one year. Businessmen mostly get themselves into this activity due to its favor to their privilege. Home equity loan helps consumers who are home owners. The equity loan is less and deductible and it gives a reason for the consumers to buy houses or homes. Every month, a portion of one’s salary is deducted to pay for a loan one spends on buying a house. Here, a buyer benefits from paying for the house in installment and this helps to reduce his or her obligation.
The buying and selling process
Consumers become more cautious while making decisions in the buying process. There are many things that strike in ones mind when deciding whether to buy a house or not to buy. How and why people make purchase decisions is what is referred to as consumer behavior. Marketers or sellers strive hard to meet with the consumer’s requirement by first trying to understand their behavior and bring the appropriate taste to the market. They do anything to influence the consumer behavior by ensuring that the marketing strategies they apply result to increased sales and brand loyalty. James. (2011)
In getting to know the consumer behavior well, the experts deeply examine the purchase decision processes. In the study of consumer behavior, one gets to know why people prefer some products over the others, how they make their choices and how firms and companies use this information (knowledge) to provide their customers with their needs. In the purchase decision process, a consumer has to go through five stages namely; problem recognition, information search, alternative evaluation, purchase decision and the post purchase behavior.
Even in buying a house, consumers must make wise decisions to make sure that their need is satisfied. The same case applies to the marketers or sellers (individuals, firms and companies), they have to do their best in order to attract and retain their stakeholders. In problem (need) recognition, the first stage, the individual intending to buy a house or home has his or her good reason in doing so. The buyer’s perceived need or problem here is a house of his choice, but before making a step of buying it, he or she has to find or search for information about the house. (Kardes, Frank, Maria and Thomas. 2011)
In information search, which is the second step, the buyer gets a chance to seek for the value of the house. He or she can source information related to the type of the house that satisfies his or her need. Here, he has time to recall past experiences with houses, strategize plans so that he or she does not make a wrong purchase decision because of high risks and many others. The consumer can look or search for information from friends and family, from public sources including reports from consumers and from market sources e. g from adverts, webs and from sales people.
The third stage is the alternative evaluation whereby the consumer may assess the value of the house. Here, the consumer samples all data collected in the information search and evaluates it, choosing or prioritizing the best which can help him or her make wise decision in purchasing to avoid regret afterwards. This is the most important stage to guide the consumer buying a house before he purchases the house.
The next step is the purchase decision which is the purchase value. Here, the consumer has three choices namely; from whom to buy the house, when to buy it and not buying the house. In considering from whom to buy, the consumer looks at the terms of sale, the past experience buying from the seller and the return policy. In looking at when to buy, the consumer considers the time pressure, the store atmosphere and the sale if it agrees with the amount of money he or she has at hand (cash). If he decides not to buy, he considers the past experience when he or she bought from the seller, the terms of sale, pleasantness of the shopping experience and many other reasons. The fifth and the last stage in purchasing decisions is the post purchase behavior, where the value in consumption or use is realized. (Stahlberg, Markus and Ville. 2012)
In post purchase behavior, the consumer of the house compares the house with his or her expectations and is ok or not ok with what he or she purchased. The consumer gets satisfied if what he or she bought matches with his or her expectations, and is dissatisfied if what he or she bought is the opposite of what was expected. The perception of value by consumers, his or her communications and the repeat purchase behavior all affect the satisfaction or dissatisfaction of consumers. It is in this stage that consumers experience cognitive of dissonance. Many firms, companies, individuals (sellers) work hard to get positive communications among consumers who after getting satisfied come back with friends to the same seller hence high sales. Some even go ahead to use follow up calls to try to try to retain the consumers by convincing them that what they bought from them (house) was really a good staff and that they made a good decision.
Consumers generally exhibit rational behavior in their choices since their behavior is predictable. The marketers are able to tell the consumers’ decision making by examining their behavior. Knowing that the decision making of consumers is ‘typical or representative’ the marketers presume that just one individual’s decision making unit can be used to determine a large group’s purchasing decision in a particular region or market. (Dierks. 2005).
People do work out all the pros and cons before making purchase decisions but you cannot compare them with machines in accuracy. It all depends on the steps they take in decision making while buying a commodity.
Real estate is an immovable property with crops, mineral salts, water or land and buildings on it. The business of real estate involves buying, selling or renting land, buildings or housing with an objective of making a profit. Buying real estate requires one to have a lot of cash and that is why one has to be keen in making decisions while purchasing it. Despite the fact that large capital is required to invest in real estate business, the outcome is very rewarding. Many investors have run into this business and it is growing rapidly in many nations. Real estate business has farther evolved into other business fields and some of them include; appraisal, broking agencies, development, net leasing, property management among many others. In each field, specialization has evolved whereby you find a business specializing in a particular type of real estate, for instance; residential real estate, commercial real estate or industrial property real estate. (Foster. 2002)
Recently, quite a large number of economists have learnt that lack of effective laws of real estate have hindered the investment in many countries that are developing. Individuals should realize that many societies, whether rich or poor, have their big percentage of total wealth coming from land and buildings. In the advanced economies, individuals and small companies who want to invest in real estate source their capital from mortgage loans. This has in one way or another facilitated the growth of this business field. Banks too offer such loans but with interests baring in mind that they can easily sell the property to pay themselves just incase the person or a firm they have lend capital refuses to refund the cash back. The other real estate financing include; savings and loan associations, commercial banks, savings banks, life insurance companies, credit unions, real estate investment trusts and many others.
The more the population of people in the economy, the greater the demand for housing. There are other factors that determine the demand for housing and they include; consumer’s income, the price of housing, the taste of consumers, both the price of substitutes and complements and many others. (Steele. 1979)
There are negative impacts on society which are as a result of individual (micro) actors involved in the buying and selling processes of real estate that even lead to speculative bubbles. When a housing price bubble bursts below its fundamental values, it can lead to social dislocation in the economy. It is through individuals, that we see the real estate business growing every single day, and it is through them, the business is seen going down.
There are a number of reasons as to why the society is impacted negatively by the individuals who are (micro) actors who are involved in the real estate business. Some of them are; overvaluing the houses. It is understood that the government is the major cause of high prices of houses. These actors too when they raise prices end up causing bubble or bursting of bubble in real estate. This negatively affects the society and the economy at large. They may also go against or change the real estate laws in a way so that it can comply with their wishes. Oversupply of properties, Lack of transparency, forging papers, going against cultural norms, uncontrolled price dynamics, short selling of real estate and many others are some of the causes that can lead to social dislocation in the economy.