WCP: How much does a Square Foot cost?

The Washington City Paper’s Housing Complex blog has a new posting entitled How Much Does a Square Foot Cost in Adams Morgan, Penn Quarter, Etc.? The blog author met with real estate research firm Delta Associates to evaluate 2008Q4 condo sales. In the posting Mount Vernon Triangle gets stacked up against the competition…

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  1. 1

    PQS says

    I have a hard time believing those numbers. $530/sqft here in MVT? I just don’t think I can get that much in this market. I hope I’m wrong.

  2. 2

    mediocre bad guy says

    thats how much I paid for my studio at the dumont in 2006.

    what’s that sour taste in my mouth?

  3. 4

    fourthandeye says

    @PQS – I’m with you on this one.

    I’ve heard new construction commonly advertise inflated square footage numbers generated from liberal measurement practices. So if you sign a contract on a condo that the sales team advertises as “x” sqft when it’s appraised shortly before settlement it may turn out to be “x-40″ sqft. Suddenly what you thought would be $490/sf ends up being $520/sf. It’s happened to more than a few friends of mine.

  4. 5

    pqliving says

    if you're signing a new deal, you may want to bring your tape measure & calculator before signing and/or seeing if you can get a contingent clause in like "contingent on unit being x square feet or larger" so you have an out if it really goes sour.

  5. 6

    PQS says

    Wow. That would explain why my appraisal sqft was different. I just thought it was a mistake. I wish I knew this when I signed.

  6. 7

    fourthandeye says

    I can’t comment on pre-construction. But if you’re buying new construction that is completed you should schedule your initial walkthrough during the 15 day rescission period and measure then. By the point in the process when the appraisal is done you’re probably too committed to walk away over a few phantom sqft.

  7. 8

    Cozmot says

    Well, interesting article, but I’m going to muddy the waters somewhat.

    I’m a Realtor, live downtown and have been following the dollar-per-square-foot ($SF) for downtown condos for years. This is only one metric I use to determine market value; no one thing can do this. Other metrics include average sale price, average net sale price (which factors in seller subsidies), whether a parking space is included, upgrades, improvements, time on the market and more.

    A good estimate of market value will include analyzing and interpreting many metrics , knowledge of the neighborhood (and specific buildings within a neighborhood), etc. For example, in the Penn Quarter, there are some condo buildings that sell units faster than others and command a higher $SF than other buildings. There are a number of factors that affect this, such as location, parking availability, amenities, financials, etc. I also see variances in $SF according the the number of bedrooms.

    So, to the muddying part, how do you determine $SF? Obviously you need to know the square footage and sales price of a property. Let’s start with square footage. How do you determine this? There are potentially five sources for this information, which will usually differ:

    1) Developer’s measurement
    2) DC’s property assessment measurement
    3) Bank appraiser’s measurement
    4) Owner’s measurement
    5) Realtor’s measurement

    As an example, in my condo unit the developer’s measurement was 1200 SF; DC’s figure was 1075; the appraiser’s figure was 1145; and my own was 1170. These measurements differ because of methodology. Developers are allowed to measure from outside wall to outside wall, and don’t take into account things like bump outs.

    The District and bank appraiser, as I did, obviously tried to determine living area rather than just area. Even then, what do you include or exclude? There’s no clear formula. When I determine the $SF of a sold unit, I just stick with whatever is given in the multiple listing service (MLS). I have no clue of the basis for the SF figure, but people tend to go with the developer’s figure, which usually is the larger one. This makes the unit more marketable, since it implies a larger living area, but reduces the $SF sold.

    The problem is, the SF given in MLS listings do not follow any particular methodology. Again, using my unit as an example, if I sold it for $600K, what was the $SF? In order of the above list, it was $500; $558; $524; and $513. As the seller, I wouldn’t care what the $SF was; it didn’t affect me. But it affects others because my unit is now a comp.

    Another factor that muddies things is the final sales price vs. net sales price. In my example, if I gave the buyer a $15K subsidy towards closing, the net sales price is $585K, not $600K. Thus, the $SF, in order of the above list, was $488; $544; $511; and $500. I think it’s fair and necessary to look at the net sales price because the seller is getting less for the property with the subsidy.

    Finally, what is the source of the sales data? Not every property sale is recorded in the MLS (e.g., direct buyer-to-seller transactions, including developers), so some data is necessarily excluded. Further, the MLS only reflects sales that went to settlement, not necessarily that were recorded.

    With that said, here is the average $SF that I have calculated, using the local MLS (Matrix). One is for the Penn Quarter proper; the other is the Penn Quarter inclusive of New York Ave NW and lower K Street NW, which I’ll call “downtown.” Other than the entire city, I didn’t try to replicate Delta Associates’ geographical areas (back to the City Paper article). I don’t know, for example, what they mean by the Penn Quarter/Thomas Circle “area.” So I just set my own arbitrary boundaries to get a rough comparison. I did use the same time period as Delta, the last quarter of 2008. Here are the results:

    Average $SF sold (closing price/SF): $465
    Net average $SF (net closing price/SF): $462

    Average $SF sold: $456
    Net average $SF: $452

    Average $SF sold: $437
    Net average $SF: $433

    As you can see, my figures differ significantly from Delta Associates, but again, it’s a matter of source data and methodologies. What is less important than our differences, I think, is to stick to a methodology and watch trends. That will tell you which way things are headed and give you a more realistic assessment of market values, which a single snapshot will not.

    But to the question of what $SF a unit sold for, take your pick.

  8. 9

    pqresident says

    very thorough and useful explanation about $ per ft2.

    I’m also a big fan of looking at the price-to-rent ratio which got way out of whack in this area during the bubble years. as far as $ go, an asset is intrinsically worth the cash it can deliver in the future while taking into account inflation.

    all this should make you ask the question, am I buying a home to live in or to live off of. the answer will also help determine the price one is willing to pay.

  9. 10

    fourthandeye says

    I agree with Cozmot’s 3rd paragraph that alludes to the fact that context does matter. The $/sf is a useful tool on the aggregate but when you get down to specific buildings it becomes more blunt. Once you’ve narrowed your options down you need to consider context.