Last week, while looking at condo in Center City, the owner showed me a copy of her tax record which indicated that square footage of her unit was 3,155SF. She was concerned because a previous appraisal stated that the unit was 2,678SF. In her mind she was sold (and was paying taxes on) a unit that was 3,155SF.
As I measured the unit, I showed her my measurements and made the calculations in front of her. I came up with 2,698SF, which supported the numbers from the first appraisal.
Then why did the developer, the agent who sold them the unit and the tax records all say that their unit was 3,155SF? The answer is pretty simple.
When calculating a unit’s square footage, developers and architects will typically include areas taken from the approximate centers exterior walls to the approximate centers of interior demising walls. They will also include portions of perimeter walls, ducts, chases, beams and other concealed areas contained within the boundaries of the unit. This can really add up, especially if the exterior walls are 1’ to 2’ thick like some of the older condo conversions in Philly. To perpetuate the problem, the tax assessors will typically get the square footage for a unit from the developer or architect’s plans.
Appraisers tend to measure condo units from interior wall to interior wall. We look at “useable interior living space”. If you can’t stand on it, it’s generally not included in the Gross Living Area (GLA). This method is consistent with guidelines published by Fannie Mae.
This can really pose a problem for appraisers when making comparisons to other units. Often, we have to rely on the public records, condo plans or a developer’s website when researching comparable units. Who is to say that the GLA reported in the records is representative of the unit’s “useable living space” or if it includes portions of exterior walls? This is why it is so important for appraisers to know their market, intimately. It is just as important for the appraiser to clearly explain and reconcile the inconsistencies in GLA; and make an adjustment when necessary and deemed reflective of the market.
This is also something that agents must be aware of, as well. Make sure you educate your clients about possible discrepancies in reported square footage. If your client thinks he’s buying a 1,200SF unit, you better be sure that’s what you’re selling. The number one reason that agents are sued these days is for misrepresenting the size of the property. If you’re not 100% sure that the square footage is correct, measure it yourself or hire an appraiser to measure it for you.
How would you feel if you paid around $1.5MM for a condo only to realize that its 457SF smaller than you were told? What’s the big deal you might ask, it’s only 457SF? Well, that’s a 21′ x 22′ room. Assuming that at 3,155SF the price per square foot is $475/SF…that missing living space cost them approximately $217,075! That’s another reason why using price fer square foot (the go-to method for many agents and developers when pricing units) is not a valid technique for valuing condos but, that’s a discussion for another day.