The Pitfalls of Price Per Square Foot REDUX

From the True gotham Archives (be back on Monday):

Last week all of the big players in New York City released third quarter numbers.

Although I have discussed the varying results in these reports, let me take a moment to put a spotlight on one number in particular: price per square foot. I’d bet every agent and buyer out in this history of the Manhattan marketplace has been frustrated and discouraged by the ridiculous variance in reported square footage of apartments across the city, particularly co-ops.

Why is that? There are various reasons. While condominium offering plans state unit square footage (and great liberties are often taken when doing so), co-op offering plans do not. That leaves the reporting of square footage to sellers and their agents. See a conflict here? There have been more times than not where I have been preparing a market analysis for a prospective seller and have come across three or four different square footage numbers for the exact same apartment. Almost always, the number is increasing over time.

A hypothetical partment 12D at 123 Big Apple Lane may have been listed at 1,400 square feet in 1993 and is now for sale and estimated at 1600. Oh let’s not forget that all of us in the industry “approximate” square footage which is why these discrepancies exist. That said, if apartment 12D has “grown” by 200 sf, this is going to affect the price per square foot numbers. People are almost always paying more per square foot than they think they are. Let’s say our example 12D is $1,000,000. At 1400sf it is selling for $714/sf and at 1600sf it would appear to be selling for $625/sf.

I am not for one minute suggesting that these discrepancies are entirely intentional, nor am I suggesting that they sometimes aren’t. This is just another example of the gross inefficiencies that taint our market.

I have two suggestions (one immediate and another longer term) to help remedy this situation: First, I would suggest that buyers not focus too much on price per square foot numbers when comparing co-ops and I would highly recommend acting with trepidation when doing so with condominiums. They’re just not reliable numbers–so why use them as a basis for one of the most important decisions of your life?

If it is very important to you, measure yourself or hire the same person to measure units that you are comparing. If an architect, a developer, an appraiser, a contractor, and a real estate agent all measured square footage, you would undoubtedly end up with four different numbers. But at least you’d have something closer to reality. Just choose the same person to measure all units.

My other suggestion to remedy this problem over the long term would be to have an independent entity "certify" square footage. Obviously a daunting task, but perhaps a lucrative one if this one particular entity could bring uniformity to an inefficient marketplace. I know of companies who have created massive databases of NYC property including such things as building photos, amenities, and financial data. Perhaps one of these companies could begin the task of offering to measure "real" square footage for a fee to give credibility to the agent and seller listing the property. Over time, hopefully this would catch on and with the insistence of buyers, we would have more accurate numbers to reflect property size and real value. I can see it now…our sample property above would be represented as 123 Big Apple Lane, 12D, 1475rsf (“real” square feet).

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