The Perils of Price Per Square Foot

With the volumes of useful data available for all to see on free and user-friendly websites like Streeteasy, ACRIS and GIS Map, the NYC real estate market has never been more transparent than it is today.  And with all this data at their fingertips, the homebuyers who are making the largest purchase of their lives have never been more well-informed.  With the ability to search for real estate at their convenience – on their couch in their underwear at 3 in the morning, at work during lunch (or while procrastinating) – they pore over listings, sales histories, building comps, neighborhood comps, photos, finishes, renovation permits, articles, essays…literally everything they can get their eyes on to help them make heads and tails of the historically opaque NYC residential real estate market.  But there is one commonality that every buyer comes back to when discussing the value of an apartment – the price per square foot.

And this makes a lot of sense on the surface.  Reducing real estate to an apparently apples-to-apples base line metric (hey, every apartment has square feet and costs money) can help buyers wade through a lot of the broker babble marketing mumbo jumbo that just distracts from the fundamental truth of hard price per square foot data.

But this would be wrong.  You can still ignore the broker babble marketing mumbo jumbo, but do not solely rely on the square footage numbers published in real estate listings as there is no uniform method of measuring square footage and you will not get an apples-to-apples comparison.

In the recent real estate news is an article about the celebrity studded new condo conversion 443 Greenwich Street and how the usable square footage in each apartment (i.e., the space you will be living in) is actually 15% less than the square footage that is published in the listing.  The square footage that is published in condominium listings is taken from the offering plans for those buildings that have been approved by the NYS Attorney General’s office – the governmental authority which oversees condominium sales.  Yes, you read that right, the law in the State of New York actually allows condo developers to tell buyers that they are purchasing materially larger apartments than they will be getting, as long as the offering plan states the method of measurement and a disclaimer that you are purchasing more square footage than you will actually be able to use.

Nearly all developers today measure square footage from the outside of the building’s exterior wall, but buildings from different eras, as well as re-purposed buildings that once served different uses, yield different results because building materials and building techniques have changed over time.  In the 443 Greenwich Street example, since the building was once a bookbindery built in the 1880s, it has far thicker walls than a typical ground-up new development would have today.  This also leads to the even greater inflated square footage calculations of corner units, which have two sets of exterior walls, relative to a unit with only one exterior wall.  Moreover, in a far more egregious distortion, developers often include a unit’s proportionate share of the building’s common elements in the published square footage.  Ever look at a listing for a 1br condo listed at 750sf but looks no more than 550sf based on the room dimensions indicated in the floor plan?  That’s the combination of the exterior square footage and common elements.

But sometimes, when you look at a condo listing from an older post-war building, the square footage quoted actually appears to make sense.  That’s because condos from different eras used different methods to measure square footage.  In the 1980s, when condominium ownership of apartments began to gain popularity relative to co-op ownership, square footage was measured in a way that far more accurately described the usable square footage of apartments.

And finally, let’s discuss co-op square footage.  The square footage of co-op units is rarely found in real estate listings since it is not typically published in the co-op’s offering plan, and lawsuits filed by remorseful buyers over allegedly overstated square footage has deterred brokers from calculating it themselves and including it in listings.  This is frustrating for many buyers who want to know what they’re buying, especially when they can compare it to a comparable condo listing that has the square footage listed.

All this goes to say that, unless you are comparing the square footage of condominium units in the same building, a comparison of price per square foot will most likely be a flawed calculation that should not be relied on.  Without a uniform method of measurement, a market that is making huge strides toward transparency remains opaque with respect to perhaps the most important piece of information in a listing.  Buyers and brokers cannot compare apples to apples without having a professional survey performed to measure the interior usable square footage of a unit before making an offer, which, while not impossible, is impractical, at best, in a market where decisions often have to be made in a very short amount of time.

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