Whether you are a real estate pro or a first-time buyer, you have most likely heard chatter about Price Per Square Foot (PPSF). During the search process, there are many factors to consider such as size, location, amenities, and, of course, price. Sometimes, focusing too much solely on price is not the best way to compare 2 properties, especially if you are a value shopper. This is where PPSF comes into play and can help make a more accurate comparison of 2 apartments in terms of price value.
Price Per Square Foot
Cheaper does not always mean a better deal. PPSF is a measurement that tries to level the playing field and allow a prospective buyer to make more of an apples-to-apples comparison of properties.
Consider the following hypothetical scenario:
Property 1: A 2200 sq ft 3-bedroom condo on East 74th Street asking $5,000,000.
Property 2: A 1700 sw ft 2-bedroom condo on East 61st Street asking $4,500,000.
Property 1 one is priced at a PPSF of $2273 ($5,000,000/2200 sq ft) and Property 2 is priced at $2647 a foot. While property 1 is more expensive, the buyer’s dollar goes farther as they are getting more square footage per dollar spent.
While things like location, bedroom count, and price will impact a decision, we can see where PPSF can be a useful measure of whether a property seems like it is priced high or low, and whether it seems like a value compared to another property.
PPSF is influenced by things such as:
- Building- is it new construction or not?
- Outdoor Space (generally counted between 30-50% of interior square footage)
- Taxes & Maintenance- buildings with high taxes or maintenance usually have lower PPSF
Is PPSF the End All Be All?
While PPSF is certainly useful when assessing pricing as a buyer, consider a price at which to list when selling, and to identify value as an investor, it is not the end all be all when it comes to what makes a property inherently valuable.
Real Estate titan Louis Sunshine once said that not all PPSF is created equally. For example, some developers might extend measurements to the outside of building walls, include hallway space, etc. which would make the PPSF slightly different than a comparable unit that did not calculate square footage the same. Thus, it is important to take PPSF with a grain of salt and understand that the figure is relevant.
Use it as a factor when analyzing your investment decision to look for opportunities or trends. Is the PPSF in line with comps based on the asking price? Does the PPSF seem to be on an uptrend in the neighborhood? Questions like these begin to unlock the power and importance of this go-to measure for real estate brokers.