February 1st 2012
Mann Report Residential
Price per square foot, or ppsf, is only one of several factors that contribute to a property’s value. Other considerations include condition, view, layout, light, time on market and market conditions. Yet ppsf has become the common denominator, if not the virtual currency in which real estate properties trade. Although it’s a basic unit of measure for floor area, the square foot is not always absolute and sometimes grows bigger by degrees depending on who is doing the measuring.
Without industry approved standards to calculate square footage, comparisons between properties are problematic. In condominiums, the methods for measuring square footage have changed over the years. In the early 80’s, floor area measured interior space for the most part. In sharp contrast, square footage of new condo construction of the 90’s and 00’s was and continues to be measured from exterior brick to exterior brick and also includes a percentage of common elements. While variations may be minimal between smaller units, when comparing larger apartments, the disparities are proportionately greater. As a result, comparing condominium apartments in different buildings is a lot like equating apples and pears.
The practice with condos is to rely on the number provided in the Offering Plan. Michael Vargas, Principal and Co-Founder of Vanderbilt Appraisal Company LLC finds that “… many banks are now requiring appraisers to re-measure for accuracy, and you will not be surprised that we have found most units are 5-15% off in the offering plan quoted square footage.”
James Lanfranchi, President at Archer Meade Appraisals notes, “The real problem comes into play when considering comparables. Since most of the time we haven’t personally measured them, we must rely on what is reported in the schedule A or in the offering plan. Appraisers at Archer Meade are directed to do “take-offs” from floor plans with an architect’s ruler to better consider the interior floor space of a comparable.”
With co-ops, the property’s prospectus lists the total number of rooms and the number of bedrooms and bathrooms, but not square footage. Vargas notes that he approached REBNY for help to establish measuring standards for co-op apartments, but “did not get very far.”
A Google search for measuring square footage shows some standards are available in some markets:
– In 2008 Building Owners and Management Association (BOMA) and International Facility Management Association jointly published “A Unified Approach for Measuring Office Space” –a 36 page illustrated manual that was the result of a three year effort by field experts to establish best practices for measurement in commercial office buildings. BOMA also publishes guides for industrial buildings and multi-unit residential buildings.
– Buildingareameasurement.com has been around since March 2000 and offers expert witnesses to resolve disputes. Their website says they provide “voluntary standards that serve to bring measurement consistency and comparability between properties.”
– The National Association of Home Builders publishes guidelines for single-family homes.
– The North Carolina Real Estate Commission mandates that “real estate agents are expected to be able to accurately calculate the square footage of most dwellings” (effective since May 2001) and provides “helpful hints” and measurement guidelines.
It would be good to have consistent methods to use on a voluntary basis especially when comparing similar properties. Some of the obvious steps:
– Start with as accurate a floor plan as possible. If stated dimensions seem incorrect, use a steel tape measure or laser distance device to measure. The latter is especially useful in crammed spaces when furniture blocks a straight line. Total area includes bathrooms, hallways and closets.
– To simplify calculations, the floor plan can be broken down into several rectangles, and occasionally into a triangle. Then arithmetic formulas determine area: for a rectangle, multiply length times width, and for a triangle, multiply base by height and divide by two.
– One website advises to keep a record of supporting drawings and any documentation to show how total square footage was determined.
Some of the not so obvious considerations:
– Are six inches sufficient to add for exterior walls, as one website recommends, and four inches for an interior wall? When measuring brick to brick, thickness of walls vary—especially between postwar and prewar buildings. In corner apartments, there are two exterior walls to consider.
– What about stairs in multiple levels and interior elevators?
– Do you round off to the nearest whole number, nearest inch or nearest 0.01 square foot? With large apartments, I’ve seen agents round off to the nearest 10, 50 and even 100.
– Do you include loft bed areas in square footage calculations? How high would the ceiling height have to be?
– A 2% tolerance seems to be the accepted standard for commercial real estate. What would be wiggle room for residential spaces?
Even with uniform standards, disclaimers are necessary given the litigious nature of our culture. Square footage should be qualified as “approximate”—which according to Wikipedia means “inexact representation of something that is still close enough to be useful.” Or to paraphrase Warburg President and blogger Fred Peters, even without uniform standards, if we measure comparable properties using the same inexact methods, our totals may be off, but they’ll be off proportionately, so that’s close enough to be beneficial.
Granted price per square foot is only part of the value equation. Other factors, some quantifiable and others incalculable need to be considered and weighed to determine and compare prices, Nonetheless, measurement standards would definitely help both agents and consumers.