Buyer Beware: Square Footage
Inaccurate square footage has turned into a contentious subject, as well as the focus of some high-profile lawsuits. This trend has transformed price per square foot, or PPSF, from a scientifically accurate, “it’s-completely-trustable” measurement into a case of caveat emptor—or buyer beware.
It’s often a big sticking point for both sellers and buyers. Sellers have to decide whether to disclose square footage or not, while buyers have to evaluate what it really means when a listing states a certain size.
In 2012, a buyer entered into contract for a 4,700 square foot penthouse at 200 Chambers Street. Or at least that's how big the broker said it was in conversation and on their website.
It was only after the buyer agreed to a $13 million price -- and put down a sizeable deposit -- that he noticed that the condo offering plan listed the penthouse as having 4,548 square feet. According to the suit, the broker had included hallway space in the measurements, which added some square footage. Either way, the condo still ended up coming in at either 96 or 152 square feet smaller than it had been represented to the buyer, depending on how it was measured.
Though the lawsuit was later settled, it highlights a key point: Measurement isn't an exact science.
Check this out:
Percentage Difference in Square Footage on a Listing
(Buildings were all picked at random- there are many more examples)
(Similar listing is either the identical apartment or the same line/floorplan in the same building)
Conclusion on Square Feet:
1. Percentage from a similar listing deviates by an average of 11.55%; in many cases, a buyer would be paying a large premium based on price per square foot.
2. The floor plan, on average, is 43.5% smaller than the listed square footage.
What does this mean for you? Say you’re a buyer looking at an apartment in the Village. You’ve established that the most you should pay in a particular building is $1,000/ft. The listing says it’s 1,000/ft, so the most you’ll pay is $1 million. What happens if the apartment is really 600 feet? Or if it’s actually 900 feet? Are you willing to overpay by $100,000 to $400,000? How can this even be an issue?
It has to do with measurement. Typically, when an apartment is listed, the broker will hire someone to create a floorplan – but it won’t be a licensed architect. It’ll be a guy with a laser measuring tape and a lot of what he’ll do is subjective. Then there’s the fact that the selling broker could very well influencing the measurements by encouraging Mr. Tape Measure to exaggerate – or even inflate -- the square footage. Square footage can include space between walls, unusable space, and even hallway space.
Plus, developers and architects calculate square footage in different ways. Many include elevator shafts or shared hallways in their measurements – all of which is legal as long as it’s disclosed in the offering plan. And the offering plan typically isn’t seen until a contract is already out and the price agreed upon— and by then, it’s already too late. Often, an attorney representing a buyer won’t go out of his way to look for a square footage issue; it’s not a main part of his due diligence and real estate attorneys are often only compensated if a deal closes, so it’s not in their financial interest.
Then there’s the issue of outdoor space.
How much is outdoor space worth?
For many home seekers, outdoor space is just as important – and valuable – as indoor space. Whether for growing a garden or simply having a relaxing area in which to enjoy the sun, apartments with outdoor space are in demand and, not surprisingly, bring premiums.
But pricing that patio, terrace, rooftop garden or deck isn’t always cut and dried.
How much is your balcony worth?
Case Study: 55 East 9th street
#7L- $1,750,000 (Asking price)
#2K- $955,000 (closed price)
Both apartments have nearly identical square footage according to the floorplan. 7L is currently on the market for 45% more than 2K. How much are you paying for the ~54 square foot terrace in 7L? There’s no square footage quoted on either listing. There are really only four differentiating factors: renovation quality and type, sunlight/views, layout and outdoor space.
1. Renovation quality/type: Both apartments seem and are described to be well renovated. There shouldn’t be much of a premium paid based on renovations.
2. Sunlight/views are definitely valuable. Typically in the area of a 20% premium.
3. Layout is very similar and for many 2K is preferable considering it has an additional home office carved out. More functionality.
4. Outdoor space: That 54 sq foot terrace seems to be the main selling point. Between 20-25% of the premium is going to the terrace. The seller here believes that the terrace is worth between $200,000 and $240,000. This is about 13% of the total asking price.
Pricing outdoor space is an art: there’s really no one formula for every space. There are many factors including how common outdoor space is in the neighborhood and building, the size and practicality of the outdoor space, accessibilty and more. Like everything in real estate, it will come down to current market conditions and overall supply.
While many buyers may enjoy the feeling that they’re getting more square footage for their buck, those happy thoughts won’t last long. Square footage is not a science and there is no uniform all-encompassing method for measurement. Never base an apartment solely on price per square foot.