Pulse Of The Market - What's the Square Footage?
Nov 03, 2015
Why do Buyers and Sellers ask this question? What difference does it make? Are they concerned about paying too much on a per square basis if they are buying or too low if selling? I thought I would discourse a bit on one of my favorite non-subjects. I'll focus on condominiums since I become even more agitated when people use dollars/square foot when discussing the value of single-family homes.
Does it matter that the average price per square foot in San Francisco has risen from $625/sq. ft. to $1,000/sq. ft. or that the average price of a condominium during the same period rose from $750,000 to $1,250,000? When you go to a bank and ask for a loan, the bank will look at loan to value (say 80% of $1,250,000), right? The bank is not focused on $/sq. ft. nor is its loan appraiser when he/she does comps, although it may be a consideration.
Would you rather pay $1,300,000 for a 900 sq. ft. unit with the layout/outlooks/amenities you like in a building in a good location that serves your needs or $950,000 for a 1,000 sq. ft. unit that has less of all of the above? You get my drift.
Why the Question?
This is a bit cynical, but I think many people ask the question about $/sq. ft. because they want to look knowledgeable about real estate, and/or it is a question that can fill a void when they may have asked all their other questions.
Developers (justifiably) use the $/sq. ft. metric to help them understand their construction costs, financing, marketing, and other soft costs, as well as their projected revenues. It makes for a very tidy model.
I recently listed a property, and in filling out the MLS information query, I was asked to enter the approximate square footage. At about the same time, a fellow agent pointed out that the sq. ft. numbers for recent sales in the building were suspect. Knowing that there has been quite a bit of litigation in recent years over sq. ft. measurements, I opted to exclude any reference to square footage in the MLS altogether. Let the buyers figure it out for themselves.
If you ask a contractor, architect, and appraiser to measure a particular unit, I submit that they will come up with three different numbers. One might measure from interior-to-interior wall, exterior-to-exterior wall, inside closets, decks, etc. Each will have his/her way of measuring, and they might vary by 10% or more.
I am comfortable using $/sq. ft. to see whether the property is in the "ballpark of reason." I prefer paying $1,500/sq. ft. for a condominium that fits my needs rather than $900/sq. ft. for one that doesn't. It's as simple as that.
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Written by: Malcolm E.A. Kaufman
Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.
Malcolm E.A. Kaufman is Founder of PulseFactors™ LLC. He refers you to his website, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.