Advances in information and communication technologies (ICT) enable a great opportunity to develop the residential demand response that is relevant in smart grid applications. Demand response (DR) aims to manage the required demand to match the available energy resources without adding new generation capacity. Expanding the DR to cover the residential sector in addition to the industrial and commercial sectors gives rise to a wide range of challenges. This study presents an overview of the literature on residential DR systems, load-scheduling techniques, and the latest ICT that supports residential DR applications. Furthermore, challenges are highlighted and analyzed, which are likely to become relevant research topics with regard to the residential DR of smart grid. The literature review shows that most DR schemes suffer from an externality problem that involves the effect of high-level customer consumption on the price rates of other customers, especially during peak period. A recommendation for using adaptive multi-consumption level pricing scheme is presented to overcome this challenge