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Is The Price Per Square Foot Calculation Relevant?

I never cease to be amazed at the fact that many Realtors (not to mention home-sellers) are judging the value of a luxury home mostly on the basis of its square footage. For a bank appraiser or a home builder to think that way, I can understand, it can indeed be a part of the valuation methodology, but for Realtors?

At the high end, not two homes are the same, even when they appear to be. Take two identical penthouses in New York, both brand new; same top floor, same square footage, same layout, same amenities. I guarantee that one is worth more than the other. Could even be a lot more. Perhaps one has a better exposure to the sun, or a nicer view, or sits next to another beautiful residential building while the other has a service station for a neighbor, or one is further away from a noisy school yard, etc. Are these two properties identical? In terms of size, quality and layout, maybe; in terms of value, of course not.

I remember looking at fancy real estate while in the South of France, a few years back. One town got my interest, and yours too probably if you had the same experience: Cannes, the site of the international film festival, stretching pretty along the crystal blue Mediterranean. Right in the middle of “La Croisette” -Heaven’s local version of a boardwalk-, there is a nice white residential building where, every so often, condos are “offered” for sale. I saw one I liked (I am easy to please): third floor, bay windows and a balcony open to the ocean and a harbor full of the most amazing yachts. Not to forget a full view of the street action underneath, at the level of Cartier, Hermes, Prada…You see what I mean. That little pad was available for the taking at over $10,000 per square foot. It was in 2006 if I recall. No, I did not buy it. In the back of the building, another condo was unofficially on the market. Bigger and on a higher floor, but the asking price was not even half that of the first & smaller one. The view was nice but who wants to overlook a pool, a garden and a bunch of rooftops when the alternative –for only twice as much- is a panoramic piece of the Mediterranean?

Square footage is largely irrelevant at the high end. Buyers buy benefits, real or perceived. Bigger is not necessarily better. Depends what you really want, or what you really need. It’s OK to want to live in a 25,000 sq. ft. home. It might even be pleasurable. But please understand that if & when you decide to sell it, it may fetch only what a nearby property of similar quality but smaller size will obtain in the open market.

Size usually needs to serve a purpose to be worth the money it costs to build. For example, you can get your money back and sometimes make a little more if you put a home-theater in your home, or a library, or a wine cellar, or an indoor pool, or a racket-ball court and perhaps even a ballroom, why not? However, if you have a huge house just to have huge rooms or too many bedrooms, square footage could be more a handicap than an added value.

Alain Pinel

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