Marketed Size Doesn't Add Up?

QUESTION FROM URBANDIGS READER: After being persuaded to act fast amongst great interest, we put in a bid which was accepted for a 1BR apartment. We had 3 days to get our attorney, lender, and home inspection together. Since our inspector couldn't make it, we did it ourselves and measured the apartment conservatively. When we got home, we added up the numbers but we kept getting about 500 total sf. I was confused, did we miss anything? The listing said 675 sf? So I went back to their floor plan and tried to add up their numbers, still it gave me around 500-525 sf! That means 175 sf is missing somewhere, that's my second bedroom! We confronted the broker with the problem and asked for a reduction; but we didn't get it. So, we backed out. Did we do the right thing?

A: Unfortunately, this is a common problem here in Manhattan where most of our sales inventory is co-op, which don't quote exact square footage; leaving the broker to guestimate the exact size of the apartment. Putting pressure from the seller to rationalize a higher asking price aside, there really are no compelling reasons to participate in this type of false marketing. I find first impressions to be very important when showing a property, and that a disappointing first impression never leads to a good bid! In the end, it's up to you to determine whether the approximate size listed on marketing materials is accurate and worth basing any bid on!

In my post, "Marketing Square Footage: Be Careful Not To Lie", way back on February 13, 2006, I discussed the problem of false marketing here in Manhattan real estate:

The brokerage community must acknowledge that buyers are smarter these days and have been on the sidelines viewing properties without bidding for them for months now. They know how big a 1,600 square foot apartment should look after seeing 12 of them already!

Buyers have more control now than they did a year ago! If anything you should advise your client to agree to under-estimate the square footage a bit and let buyers be 'pleasantly surprised' when they come for a showing. After all, happy buyers are more likely to submit an offer!

Then I hear from one of my readers on the live chat that a broker over-estimated the square footage of a 1BR property by about 150 sft; by marketing a property measuring about 525 sft at 675 sft! You make the call, here is the layout:

How big is this property? Let's do some math being conservative:

BR (14'3 x 11'6) ---> Aprox. 170 sft
LR (12'6 x 12'6) ---> Aprox. 160 sft
OPEN KITCHEN (8'5 x 9') ---> Aprox. 80 sft
BATHROOM (lets say 7' x 9') ---> Aprox. 65 sft
TWO CLOSETS (lets say 20 sft each) ---> Aprox. 40 sft
FOYER (lets say 5' x 5') ---> Aprox. 25 sft
-----------------------------------------------------------------------------------
TOTAL APPROXIMATELY ---> 540 Square Feet

So, this buyer has a very valid case if the broker did in fact market the property at 675 total sft on the marketing materials. Thats about a 20% overstatement in size. Question is, what should this buyer do now if they are still interested in buying the property?

# 1: DO MORE RESEARCH / ASK FOR # OF SHARES - First, do more research and find out how many shares is allocated if its a co-op unit. Find out past sales in the building and if you can uncover what a similar unit was marketed at on a square footage basis and a per share basis. We are looking for consistency here. Chances are there are similar layouts somewhere in this building and that one of those similar units probably sold in the past 5 years or so (you just need to price in for time appreciation, renovations, light, views, etc.). Ask your buyer's broker to send you ALL layouts and marketing specs for similar units in the same building.

When you get this data, see if there is a discrepancy with size at which the property is marketed? Is this an isolated incident or were past units also marketed and sold at over-stated size quotes too? Make sure you analyze the floorplans and specific dimensions of each room when doing this comparative research.

Also, see what similar units sold for per square foot, or per share for co-ops with no size listed.

# 2: BASE BID ON YOUR ESTIMATE / BUYER BEWARE - Now that you did some research and you have hard facts PLUS your mathematical estimate of the size of the property, base your bid on this data and NOT what the marketed size may be!

For example, in this example you should base your bid on a property measuring 540 sft and NOT 675 sft! If you couldn't find and similar layouts or units with stated size listed for comparison, then use the 'per share' analysis. That means you need to know how many shares the unit in question has allocated to it AND at least one comparable unit to compare it with.

If this unit has 200 shares allocated to it and the last similar 1BR sold for $350,000 and had 210 shares but was one floor higher, chances are it is the same size and was given a 10 share premium for being on a higher floor. Do the math:

$350,000 / 210 = $1,666/per share

You should expect to pay around that price for the unit in question. If we multiply $1,666 by 200 shares for the unit we are discussing, we come to a price of about $333,000 or so; lower to compensate for being on a lower floor and getting fewer shares.

Remember that NYS is a Buyer Beware State!

#3: SUBMIT BID / EXPLAIN TO BROKER - Don't be scared to confront the selling broker about WHY you are submitting a bid lower than the asking price. Explain to the broker HOW you came to that #, and mention the past sold comparable unit you used for analysis.

Keep in mind that to get financing for a deal to go through the lender's assigned appraiser MUST appraise the property at the purchase price! If a property is over priced and the seller/broker rationalizes that price by bumping up the marketed square footage, you may fool a buyer but you probably won't fool the appraiser who comes in, measures, and then compares the purchase price to past solds in the building and surrounding area!

If it doesn't work, then back down! Take pride in the fact that you did your diligence and you avoided making such a large investment decision based on emotion! Let someone else make that mistake and deal with marketing it at the same over-stated price down the road. I'd rather you pay hundreds of thousands of dollars for a property that is marketed for what it is, rather than for what is isn't!

UrbanDigs Says - This buyer contacted me about this and told me that they backed out of the deal after measuring the place to confirm the dimensions listed on the floorplan. I think they made the right call. They only problem they did was submit the bid first, and then try to negotiate it down later when their concerns about the total size were confirmed. They should have done their research BEFORE submitting the bid! Even if the deal went through, the appraiser probably wouldn't have met the total size of 675 sft for the property. Be smart, don't lie about the size of a unit! It's better if you are honest and let the property sell itself. The main reason for lying in the first place is if a seller demands an outrageous sales price leaving the broker to bump up the size to make it more in line with market value! The problem with this strategy is that showings will leave buyers disappointed and that most buyers will ultimately pick up on the trick!

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