How are homes priced?
Whenever I meet with prospective sellers, they’re always anxious to get to the big question: “So what do you think we can get?” While location and square footage are obvious factors, similarly-sized apartments in the same area can sell for vastly different prices, and it often comes down to a handful of both physical and intangible factors. Take a look at the top five physical attributes that affect the value of a property:
Part 1: The Physical Space
Almost as important as overall square footage is how that square footage is distributed within an apartment. Important layout factors that can add or detract from a home’s value include long hallways that eat up space but have no real utility, the number and usability of bedrooms, windows or lack thereof (think lofts that technically have no windows), the ability to convert to higher usage level (i.e. add additional bedrooms).
2.) Windows, Walls, & Floors
No, we’re not talking about the actual windows and floors, but rather views, exposures, light, and ceiling height which affect the overall feel and, therefore, desirability of an apartment. While there is no precise formula, again, it comes down to nuance. Whether an apartment is on the 5th or 6th floor may not matter much, unless the 6th floor clears a neighboring building and has wide open views. The number of exposures is a related but distinct consideration, as multiple exposures usually means more flexibility in layout, greater light, and can make up for challenged views from some rooms. Another major consideration is ceiling height, which can change the entire feel of an apartment, and make up - to some extent - for size/layout challenges.
Renovations work a little differently in NYC than on TV shows like “Love it or List it” where $20,000 worth of work adds $35,000 in value to the home (not to mention what $20,000 gets you in NYC...). Renovation value is based more on overall condition than specific finishes or features — i.e. what matters most is whether a home is in mint, good, fair or poor (think estate) condition. That said, very specific finishes or style of renovation, even if costly or recently done, will not add the same value as one that appeals to a broad audience.
If a property needs extensive renovation it can still benefit from spiffing up before listing. Even buyers looking for a “project” (like our recent sale in Chelsea) may have trouble seeing the potential of a space that is cluttered, dingy, or dirty. A thorough cleaning, paint job, and some new light fixtures can make a huge difference, not necessarily in value, but in saleability. For our tips on small improvements that can make a big impact, see our previous post here.
4.) Outdoor Space
Not all outdoor space is created equal. A balcony is worth less than a terrace, deck, or yard. Access is also important. A box staircase inside an apartment leading to a roof deck or double doors that open directly from the living room onto an expansive terrace are going to be worth far more than a steep spiral staircase or when access is via a common staircase, elevator, or a bedroom. Also, marginal differences in size of outdoor space matter less than interior square footage; for example, a home with a 1000 sf terrace versus a 1200 square foot terrace is unlikely to command a materially higher price.
5.) Building Age & Period Details
Everyone knows that pre-war charm sells — high ceilings, original woodwork, crown mouldings, wood burning fireplaces are all at the top of many buyers lists — and, there are only so many pre-war buildings. However, not all buyers are in love with pre-war details. Some prefer floor-to-ceiling windows, brand new finishes, high-end amenities, and hi-tech offerings that are typically only available in new buildings.
Part 2: Beyond The Physical
Intangible factors can have a dramatic impact on home values. Here are five additional factors that can increase or impair the resale value of NYC apartments:
There is a broad range for what is considered normal or “acceptable” for the monthly carrying cost on an apartment (common charges, taxes, and/or maintenance). A monthly that is above or below the “acceptable” range can have a massive effect on sale price. Not surprisingly, apartments with very low monthlies generally sell at higher values and are more resilient when market conditions turn sour. By contrast, apartments with very high monthlies -- or a track record of high increases in monthlies -- will often languish on the market before selling at a steep discount compared to similar apartments with more favorable monthlies.
Buyers tend to be highly sensitive to monthly carrying costs, and for good reason: Since most buyers finance the purchase price over 30 years, incremental increases in price have little effect on their bottom line. However, monthly carrying costs are felt directly by buyers, and for the length of ownership. (Ex. An extra $500 per month in carrying costs equates to the additional mortgage payments on a property that is priced about $140,000 more.)
2.) Required Down Payment Amount
A typical down payment for NYC co-ops is 20-25% of the purchase price, but it is not unheard of for some buildings to require a 40-60% down payment. A high minimum down payment will reduce the pool of potential purchasers and might negatively affect sale value, especially in areas where a higher minimum is less common. It could also prolong the amount of time an apartment sits on the market, exposing the seller to the risk that the market could worsen in the meantime.
On the flip side, some buildings have no down payment requirements at all. But in those cases the building’s financial condition may make it impossible or difficult to finance. When pricing such units, the lack of available financing may impact the price by 10-20% which could be a great opportunity for cash buyers who could resell later for great upside when the building’s financial condition has improved.
3.) Service Level
Amenities don't just mean high-end features like a roof deck, pool, or fancy new gym -- equally important are things like doorman service, a live-in super, elevators, a laundry room, storage bins, bike storage, etc. There are certain kinds of amenities, especially elevators and laundry, that matter a great deal to most buyers, and therefore will affect price. While inventory is different in every neighborhood - for example, most buyers looking in Park Slope are not expecting an elevator - keep in mind what the building offers compared to others in the area. If the building is in a neighborhood made up predominantly of doorman/elevator buildings, the absence of these amenities will probably deter some buyers, and ultimately lower demand when it comes time to sell.
4.) Building Policies
Of course, every building is going to have its own policies or rules. But if a building’s policies are especially restrictive or severe, potential buyers may be deterred. For example, restrictions on subletting are quite common, but some co-ops prohibit it completely which can limit the market and reduce value. While many co-op buyers do not go into a purchase with the intent of subletting their apartment, they may feel more comfortable with their purchase if the building permits some subletting in case their circumstances change.
Another area of concern for many buyers is a building’s policies on pets. A strict “no pets” policy might deter even a buyer without a pet since the policy will limit the market for resale since it means any potential buyer is committed to never having a pet.
5.) Building's Financial Health
Buildings with a history of hefty assessments, or sudden large increases in monthly charges, will usually be a red flag to prospective buyers, as they can indicate disorganization or poor budgeting on the part of the management company or Board. A building’s financial health could be indicative of whether or not a buyer can afford the unit in the long term, and is an important factor for any savvy buyer.
Whether you live in your home for 5 or 35 years, these considerations should factor into your bottom line both in terms of your monthly outlay and what to expect when it comes time for resale. Home values depend on much more than what meets the eye, so it’s important to have a complete picture before committing to such a significant investment.