ABSTRACT
Behavioural finance has produced many stylised facts on financial markets that contradict predictions coming from models assuming rational investor behaviour. This chapter examines the role and contribution of behavioural real estate finance. It aims to define behavioural finance and its core concepts of sentiment, heuristic and rule of thumb. The chapter deals with a critical assessment on the value that a behavioural approach can bring to an understanding of real estate investment markets. Real estate agents, for one, may have a clear monetary incentive to talk up a market. For instance, real estate agents may encourage their clients to sell, because agents’ contractual incentives might be skewed in favour of a quick transaction instead of a best price transaction. S. D. Levitt and C. Syverson find for residential real estate agents that prices are relatively higher and houses stay on the market for longer if the agent sells his own house than a client’s home.
