Starboard Commercial Real Estate

Hans Hansson | November 3, 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.

What Matters

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.

Pulse 146 - Matters

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.

Pulse 146 - question

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.

Ballpark

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.


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.

Posted 3 years, 3 months ago on November 3, 2015
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