January 1st 2012
Mann Report Residential
Square footage is a critical consideration in determining and comparing property values. Yet there are no uniform standards for measuring space in New York’s residential housing stock of co-ops, condo’s and townhouses.
When I first started in the business, we sold apartments by the number of rooms, making distinctions for post war and prewar products and for location. That was before loft conversions in the late 80’s and the condo explosion of the 90’s and 00’s. “Price-per-square-foot” has become the common denominator and currency of our marketplace, but until consistent guidelines are developed to measure spaces, it’s an unreliable metric for determining the value of a property.
It’s time to develop approved and accepted industry wide methods to calculate square footage in residential spaces. If we are to help our data driven buyers and sellers to evaluate a property’s value and also to compare it to other like properties, then we need to be able to measure qualitatively and quantitatively and match up apples to apples.
Since the late 90’s when the buyers of a Park Avenue co-op backed out of their purchase contract, suing both seller and broker in a claim that the apartment fell 15% short of what was advertised, brokers have been reluctant to cite square footage for co-ops. Though I know of this one lawsuit only which was settled ultimately out of court, numerous complaints have been filed against brokers and developers for inconsistencies and inaccuracies, and many deals have gone south because of discrepancies and disputes.
In condominium offerings, the practice is to rely on the number published in the Offering Plan in which the developer is required not only to specify square footage but also to disclose how it was computed. However unless we read the book length prospectus to understand what went into the gross calculations, comparisons between buildings are often very challenging. Variations abound because developers include a prorated share for a variety of common elements such as elevators, corridors, stairwells, mechanical columns and pipes. Their inclusion in gross area distorts actual apartment square footage. With condos selling an average $1,130 per square foot (and over $10,000/sf in a recent sale at 15 CPW), anything greater than a 2% measurement tolerance in floor area translates into significant sums of money.
By definition, residential square footage comprises the floor space within a home’s perimeter walls, including closets and hallways. One would think that multiplying length times width to determine the area would be straightforward arithmetic. However, if you were to ask a tax assessor, appraiser, architect, developer, broker and homeowner to measure the same apartment, you are unlikely to get identical area results and more likely to get six very different responses. Similarly, if you were to ask a carpet installer to compare a 2000 square foot condo in one building to another in a different development, you’re likely to come away with two very different carpet estimates.
Do the benefits of industry guidelines outweigh the risks?
Although REBNY provides guidelines for commercial brokers to measure floor space in office buildings and stores, no industry standards exist for the residential market. Effective since January 1987, REBNY has been offering commercial agents precise recommendations “to facilitate a comparison of the cost of space among buildings,” acknowledging “loss factors” and dissimilarities between structures in order to determine usable and rentable area.
I asked REBNY’s President Steven Spinola whether something similar could be provided for residential agents. “We looked at this in the past,” he notes in an email. “A good number of legal concerns were raised over a broker articulating square footage and then being sued over the number that was given. On condo units no one should use anything other than what is listed in the Offering Plan. I am willing to explore this for co-op units but the lawyers will argue against.”
I checked with three attorneys; two were dubious, and a third encouraging. Neil B. Garfinkel of Abrams Garfinkel Margolis Bergson, LLP, said, “From the perspective of representing real estate brokers, I would not be in favor of it. I think that even if you were to come up with a standardized method, I would not want it to fall to the real estate broker to participate in the calculation of square footage—there is way too much risk!” Craig L. Price of Belkin Burden Wenig & Goldman LLP agrees: “You need to weigh the potential liability versus the value of the data to the market. I am not sure the ‘need’ for data outweighs the inherent risk associated.” Luigi Rosabianca of Rosabianca & Associates, PLLC disagrees however: “This is a matter of great dispute within our industry, but we need uniformity, and I am definitely in favor of exploring industry standards.”
In 7 states—namely Connecticut, New Jersey, Vermont, Colorado, Alaska, Indiana, Minnesota, Nevada, and West Virginia—square footage has been defined by law since 1994. In New York, where the stakes are incredibly high, square footage is too important not to be addressed by brokers. Floor area is a huge component in the valuation of residential assets and influences negotiations. It’s time we as an industry took voluntary responsibility (before the state mandates it) to devise clear, logical, and easy to compute objective methods to calculate floor space. Guidelines would not only assist the broker in measuring square footage to achieve measurement consistency and comparability between properties, but it would also offer consumer protection.