Price per Square Foot

Here's a quick lesson on "Price per square foot", (or ppsf). Price per square foot is a very effective means of pricing property, particularly in large multi-dwelling buildings. The other day I was explaining how to utilize ppsf data to a client of mine, and she said "Oh, it's just like pricing diamonds!", and she is correct.

One of the "4 C's" of pricing diamonds is "carat", or the physical size of the diamond. Small diamonds are obviously less expensive than larger ones, but as the diamond gets larger, the price increases ever faster.

For example, a 1/4 carat diamond of a given cut, color and clarity may sell for $200. A 1/2 carat diamond may sell for $500, a 1 carat for $1,300 and a 2 carat for $3,500! You can't simply add up the cost of four 1/2 carat diamonds to "equal" a single 2 carat diamond. The larger diamonds are simply much more valuable than the smaller ones.

The same pricing analogy is true of apartments. In a given location, for apartments of similar condition, the ppsf will vary considerably by size. A small studio apartment may sell for $700/sf, but a one bedroom in the same building may go for $800/sf and a two bedroom for $1,100/sf. Unfortunately for the buyer, the bigger apartment is not only more square feet to pay for, but each one of those square feet is more expensive! On the bright side, unlike diamonds, you can combine small apartments to make larger, more valuable ones. (But that's a topic for another post!)

Reach me at: michael.sussilleaux@gmail.com

2010

And so it goes. Another year begins, and we look forward, (and backwards), to get our bearings and plan for the future.

2009 showed a marked improvement in sales activity late in the year as buyers who were on the fence finally began to pull the trigger. The best apartments at the best prices are moving again, particularly in the studio and one-bedroom market.

What does 2010 hold? The future is always uncertain, but here are some of my thoughts:

1. The Federal Reserve is currently slated to pare down their direct support for mortgages this spring, and it is likely that interest rates will rise from record lows over the course of the year.
2. Inventory is down from its' record levels in 2009. It is not a sellers' market, but it's not so strong a buyers' market that buyers can unilaterally dictate terms. Many buyers have unfortunately lost out on properties they really liked because they pushed too hard and the sellers went elsewhere.
   
3. Inflation is a growing concern across our entire economy, not just real estate.

Should you make any resolutions for 2010? That's a personal decision, but here are my personal real estate success resolutions:

1. Be reasonable. You are not going to find the lone rube who is willing to pay 2007 prices for your apartment, nor will you be able to drive down a seller to accept 50% off the asking price because you are paying cash.
2. Learn the market. Find out where prices are for properties that are in your realm of interest. That way you will be able to know what amount to bid to buy it, or what price to offer it for in the case of being a seller.
3. Get an excellent real estate attorney. This past year I have seen more deals fall through because of bad lawyers than ever before. You stand to lose a boatload of money if there should be a problem and you have inadequate representation. Get a recommendation and under no circumstances should you use a friend or relative (read "cheaper fee") whose business is not primarily that of New York real estate.
   

I wish all of you a healthy, happy and prosperous New Year!

Reach me at: michael.sussilleaux@gmail.com