Measuring UP Square Footage - Is Regulation Needed?
A: This is a topic I touched on a few times here, and is an old story that gets replayed every 10-12 months or so. Just how 'off' is Manhattan square footage? To be honest, its way off but I think this marketplace has evolved past the point of really caring anymore. Everybody knows that co-op apartment sizes are estimated and I rarely run into a broker anymore that actually quotes some odd total size. They'd be foolish to say something like that given that only condos have the marketable square footage clearly documented in the offering plan filed with the AG's office. Brokers learned, and as a result, so did the consumers that for co-ops the 'how large is this apartment?' question always comes with a roughly estimated number followed by a very clear disclaimer on accuracy! In this day and age, buyer's know they have to take matters into their own hands.
The Real Deal discusses how the "Inexact science of square footage causing inaccurate appraisals, unhappy buyers":
"When it comes to square footage in New York City, it's the Wild West," Bill Staniford, the CEO of real estate data Web site PropertyShark. "It's measured in so many different ways."I totally agree and is the main reason why I do NOT use price per square footage as the source for my client's property valuations - rather, I focus on same line comps or at the very worst find a similar bed/bath unit and make a simple size adjustment if the data exists; more on this below.And in the current downturn, the difficulty of determining square footage is contributing to a number of other problems, from low appraisals to ruined deals. Staniford, who constantly fields questions from brokers about inaccurate square footage data on file with the city, said using price-per-square-foot as a measure of value is "totally pointless."
The market knows or at least learns very quickly, that marketable square footage is if anything skewed to the upside. Which brings up a very interesting question --> You know those quarterly market reports that we all spend so much time analyzing? How accurate could price per square foot trends really be if the marketed size for 70% of our housing stock is estimated? I guess over the long term one can argue that the trend filters out some of the noise of the inaccurate data.
Condo's are easy as the marketable square footage is stated in the offering plan; all but eliminating the question of size and making it foolish for the seller or broker to try to artificially inflate! But co-ops? Co-ops take up 70% or so of our housing stock and total size is not listed in the offering plan...and with every co-op sale is a buyer that attempts to value the target property in order to figure out how to bid. Therefore, how do we value or price these things if the listed size is off? Maybe we should start using the # of shares allocated to the unit as a price per share valuation tool? Maybe REBNY needs to implement some regulation on the sell-side that requires every new Co-op listing from a member firm to use an outsourced contracting agency to measure the floorplan/size accurately for marketing purposes?
The solution MUST encompass most of the market to be worthy - which is why I say that any regulation needs to come on the sell side and not the buy side. I recall being charged about $150 for a professional floorplan to be made by OLR Digital who physically sends someone to the apartment to measure up everything. Is this cost really breaking the bank? What if REBNY required all new listings to be properly measured prior to listing?
In a commission based industry where the brokers don't earn their cabbage until after the closing, the environment is set up to result in flaws and discrepancies for marketing. Why? Because the broker and the employing brokerage firm doesn't know if they will ever get paid on the sale. That's no excuse, I know. So, maybe REBNY needs to make the employer brokerage firm responsible for professional measurements without penalizing the agent's ad budget? Possible, but not likely in this world.
My main concerns of this topic are over individual co-op unit valuations and the quality of analytical data for the entire marketplace - if in fact the majority of estimated co-op square footage is artificially inflated. This lowers my confidence level in Price Per Square Foot data trends and calls into question how one may value a target property based on a different apartment line whose total size may have been inflated. Exactly what Bill Steniford talks about in The Real Deal article.
When I do a property valuation I always look for in-building comps in order of the following priority:
1) SAME LINE SALE w/ SAME FOOTPRINT - this is the first goal. If my buyer's target property is an 'A' line, then I look for similar 'A' line comparable sales in the same building to do an analysis on. If I find a recent 'A' line to compare to, I just double-check the floorplan to make sure the footprint of the two apartments are identical. This eliminates any flaws in only doing a PPSF breakdown where one of the properties being used may have had its size inflated. I have the same layout, the same line, the sale price and the sale date. Forget the price per square foot method - I'll make my own adjustments for market conditions, renovations, and floor premium or discounts.
2) SAME ROOMS/BEDS/BATHS - this is the second goal if I can't find a same line to compare the target property to. I always stay in the same building unless the data is non-existent for an analysis. If my client's target property is a 6/2/2.5 (the format of this is generally Rooms/Bedrooms/Bathrooms) apartment, then I look for different lines that may have these exact property features - all in an attempt to compare apples to apples. As you start changing apartment lines, you start changing layouts/views/exposures/natural sunlight/etc..and the valuation becomes slightly compromised and more difficult as the open market value of these types of features in this market are highly subjective on the buy side.
3) SAME BEDROOMS/BATHS - If I can't find the same r/b/b to compare to, I eliminate the ROOM part of that equation and look for a comparable in the building with similar Bedrooms & Bathrooms. If the size of the both apartments are provided and there is a gap between the two total sizes, I can account for that by taking the sale price per square foot of the SOLD property and multiply that by the gap in size to the TARGET property and add that total to the comparable being analyzed so I have an equal foundation to do an analysis on. Of course the major flaw in this method is whether the SOLD or TARGET property's square footage was artificially inflated. I'll provide an example:
TARGET PROPERTY --> Apt 14A is a 1,350sft, 5.5/2/2 apt, and is asking $1,595,000
SOLD PROPERTY (same building) --> Apt 6D was a 1,250sft, 5/2/2 apt, and sold for $1,350,000
There is a 100sft difference in the two properties, different property line, and an 8 floor difference. If you read my technique for Valuing Manhattan Property you will know that I don't do PPSF valuations and rather I will adjust the two properties to be of the same size if I can't find a similar line to compare to - after this size adjustment, I will do the following adjustments to complete the analysis:
a) market conditions
b) light/view/exposures of different lines (floor premium)
c) renovation differences
First lets get the SOLD property and the TARGET property of equal sizes by closing the gap using the PPSF of the comparable sale:
100sft x $1,080 = $108,000
Since the SOLD property closed for $1,080/sft and the TARGET property is listed as 100sft larger, lets ADD $108,000 to the sale price of 6D and then move on to the other adjustments:
$1,350,000 + $108,000 = $1,458,000 as a starting point
The hope is to avoid this 3rd option for a comps analysis and to use a similar line.
Back to the discussion. The problem is that this is a very solvable problem but I don't think the powers that be have the motivation or the will to put a proper resolution in place that may cost brokerage firms more money to adhere to. It's a man-eat-man world out there and Manhattan buyers learned to fend for themselves. Brokers out there MUST use caution when quoting the total size of co-ops and it might be worth that $150 to simply hire a professional floorplan from OLR to get the exact measurements before the new listing even hits the market.
Comments (12)
god damn this makes my blood boil. WTF is it that real estate agents actually do besides unlock doors and spin the facts. A 6% commission on an 800k unit is $48k. For that kind of money, you should know basic geometry and how to measure area!!!
I can't fathom what the problem is in accurately measuring sq footage on a unit- it takes too much time? Boo hoo, its your friggen job! I know I am getting flamey, but 90% of RE agents are morons who are too stupid to do anything else than make phone calls, and this proves it.
As an aside, my second least favorite profession is "mortgage broker." I was in a high profile new high rise this past weekend, and before I was allowed to see any units, I had to meet with a representative from Wells Fargo so she could screen me and see what I could really afford- because I guess I look like a subprime kind of guy trying to live beyond my means. The rep was apparently using a web app to calculate the mortgage payment and taxes, and she was using a cellphone connection to get to it, and it was flaking out on her constantly. After sitting there for a half hour while she bumbled about, I asked her- "What is it exactly you are trying to do? pre-qualify us using Wells Fargo criteria, or just tell us what our monthly payment will be?" She responded that she was only trying to tell us what our payment would be- which makes sense, since she didn't ask our incomes.
Anyway, she had no idea that you could just do that in excel using the PMT function, and aside from the fact that she said she was in the business for 15 years, couldn't even come up with an estimate faster than I could, and I had to actually grab the laptop from her, and show her how in excel to calculate the payment. It would all be rather funny if this wasn't her job, and she didn't have 15 years experience!
I really hope technological advances make all these useless people obsolete, or laws that allow fair competition and open access to all listings will at least level the playing field.
Sorry for the anger, this just... gets me.
Posted by Kevin | March 5, 2010 9:48 AM
Kevin - rant on, everyone's thoughts and opinions are always welcome here.
I think the safest thing to do is to buy a floorplan service for $150...its certainly cheap enough. NY Times print ads used to cost around that for each one, and honestly, with nytimes.com and streeteasy, I dont see the need for weekly print ads like we used to 3-5 years ago. That savings could easily cover the expense of hiring a floorplan service that measures every nook and cranny. They give you total size and that should be enough to transfer any liability of quoting the size from the seller broker...Im not a lawyer but I think if you say, "well we had this apartment professionally measured and it came out to xxxx sft and we have documentation to show this", and the broker PAID for the service, why couldn't you use it?
Honestly, Im not so sure sellers or brokers WANT a accurate measurement of their place. It may come out smaller and then they will rant because when they bought it they were told it was 1000 sft and now it measures out to 912 sft...etc..
This is the messed up market we are in. The brokerage profession has very minimal barriers to entry and to become a salesperson is quite easy...with more than enough brokerage firms out there willing to sponsor you. As long as the brokerage model will be to get as many agents out there bringing deals back to the home base to split, there will be spots open for new brokers.
There are good brokers out there, I know many, but the reputation of this industry tarnishes the good hard working ones that do spend money for professional floorplans to add transparency for the buyers who come to view their listings.
Posted by Noah | March 5, 2010 9:56 AM
I agree that there are different ways to measure square footage, but there should be one answer. It is not subjective, it is an relatively easily measureable stat. All the BS of adding in common areas, etc. should be illegal. For $150, buyers should have the space measured if the seller hasn't. If the seller doesn't allow you to, then maybe you should move on. (Maybe that's tough if there's something that you really want, but then don't let sq. ft. be part of the decision.)
In the securities industry, these types of blatant misrepresentations could put people in jail. Why are the protections in RE so much weaker, especially when most people have so much of their wealth tied up in it?
Posted by Anonymous | March 5, 2010 11:46 AM
My wife and I took ourselves out of the market, but when we were looking at apartments, we noticed this being very prevalent even in the condo market.
I've gone to open houses where the dimensions of the living room (for example) were listed as being XxY, exactly the same as my current rental, and found the living room to be less than half the size. Not just off, but hilariously way off. Like 550 sq ft shoe boxes marketed as 900 sq ft.
It may be the case that condos list the actual square footage in the plan, but I tend to doubt that is what ends up on the broker's web site and streeteasy. They just want you to come in the door and fall for the place, and if padding the size upwards means it meets more peoples' sql-based web searches, that means more eyes and more feet.
I understand the practices of measuring square footage vary- what is so hard about standardizing this? And I agree- including the common areas in the square footage is horribly disingenuous. Should a unit in a building with more hallways really be worth more, all else equal?
Even the number of bedrooms seems to be too hard for real estate agents to figure out. I don't care if the unit's "dining alcove" is sufficiently large that you could conceivably add a wall and make it a bed room- its not a two bed room unless there are actually two bed rooms currently in the unit. All you're doing when you do this is associate your brokerage with "assholes to avoid doing business with" in my mind. Also- windowless home office != bedroom, especially if it's, you know, not long enough to fit a bed.
And don't even get me started on the use of fisheye lenses in the photos.
Posted by drtomaso | March 5, 2010 12:42 PM
I actually enjoy spotting the smart brokers who use wide-angle lenses for their staged shots. It typically indicates that at least they've been to the unit! The simple answer to all of this is standardization of practices. On the commercial side, you get sued but for whatever reason the residential side is left to its own devices and the name of the game is fudge the numbas. My fav are all of those 2/1 pre-wars out there trying to get a million+ bucks.......
Posted by Fred | March 5, 2010 2:53 PM
It would seem to me that this is something that would really need to be cleared up. There has to be a standard that is accepted by everyone, otherwise who can really say what a property's value is. The way the system works actually encourages dishonesty and the wrong type of professionals will prosper at the expense of the general public.
You are absolutely right, this is a very solvable problem. Something should be done about it.
Posted by Malcolm Johnston | March 5, 2010 3:10 PM
One solution: at closing, the buyer gets 1% for every extra bogus sq ft- of the broker's commission.
Seriously though, when we had been looking at units two years ago, our experience was similar to drtomaso's. The best was a "huge, modern 2BR" in the east village that was barbell shaped- literally a hallway with a 10'x10' room at either end, main entrance in one of the "bedrooms". Throughout our searches I was shocked at how little shame some brokers have. Even worse, before I had taken my apartment off the market a year ago, I had an open listing. I told a Citi-Habitats broker I interviewed thanks but I did not want her to advertise my unit. A month later I saw that there were two NY times ads for my unit, one I placed on my own and another that the broker put up without my permission- having a 30% larger floor plan!
I know that there are a few good brokers out there with integrity and I wish them the best- but it seems the majority aren't, and tough times are no excuse. I know exactly how Kevin feels. I'd much rather give my lawyer 6% (someone who is OBLIGATED to understand minute details and look out for my best interests) than someone who more often than not understands less about RE transatctions than I do.
Posted by nycjoe | March 5, 2010 4:26 PM
Thanks for the update!!! Wow, awesome real estate blog.
Posted by House advertising | March 6, 2010 12:51 AM
Great site, Noah!
Yeah, they have really gotten out of hand with the square
footage.
History: In the nineties a buyer who wanted who wanted to
get out of a contract sued a large brokerage on the square footage and won. I was aware of the agent-a nice girl new at the job -and the client who was indecisive and rude. He "won", and
that's when the "approximate" came out of the woodwork, and everybody was good for a while...
Ironic cause that was at the beggining of a large price run-up,so the buyer was kind of an idiot- but keep your paperwork.
Posted by park sloper | March 7, 2010 12:37 PM
thanks ps! Yea I remember the headline, it was stribling broker wasnt it?
http://www.observer.com/node/41280
Anyway, still not sure there will be any change going forward. Not until there is a motivation and will to enhance the industry standard
Posted by Noah | March 7, 2010 8:40 PM
Hi Noah, In Tucson it's all basically tax assessor based for footage but in other parts of the country I can see (especially high priced areas NYC, LA, SF, Etc) I can see how an aggressive estimate of sqft could easily boost the sales price for a seller. Buyers should always verify if they have doubts I'm sure many would be surprised how much home they are actually buying
Posted by Michael Oliver | March 9, 2010 11:42 PM
Very interesting Real estate blog. Hope it will always be alive! Thanks for this
Posted by How to sell by owner house | April 13, 2010 3:18 AM