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
Posts
