In Monday’s blog post, we talked about the idea of pricing raw land, and how difficult that can be in certain circumstances.

Today, let’s talk about putting a price on something even more difficult.  No, I’m not talking about some intangible, such as love, or happiness.  And I don’t think we can put a price on somebody’s life, although I believe they do in some countries…

Let’s talk about features of condominiums, which many buyers value differently, and the sellers who possess these features definitely value differently!  As for agents, many of them have no clue where to start…

As Realtors, pricing makes up a lot of what we do, and some might call it a “skill.”  Of course, some might call it “needless,” in certain segments of the market, ie. a single-family home that could be worth $775,000, or could be worth $795,000.  In the end, price it at $699,000, and let the market determine what it’s worth.  It lets many Realtors off the hook, in the end…

But then there are circumstances where you really, truly, have to know how to evaluate a certain feature of a property, and when it comes to condominiums – where so many of them are almost identical, it’s those subtle differences that can make up a huge difference.

How much more is Unit #1701 worth than Unit #1201, when they’re identical in every way except for the height?  That is what I want to talk about today.

Here are the most common items that buyers, sellers, and Realtors disagree on when it comes to the valuation in condominiums:

1.  Height Of The Unit

This isn’t necessarily number one on the list, but it’s something that comes up all the time.

As I alluded to above, many times, we’re just pricing the same model unit, but a few storeys higher.

Developers will charge around $1,500 per floor in pre-construction sales, but that doesn’t mean it’s “worth” $1,500 per floor on the resale market.

If the owner of Unit #1701 says “My condo is worth $7,500 more than Unit #1201, because I’m five floors higher,” is he necessarily correct?  I’m sure he thinks so.  But many buyers won’t care in the slightest.

It all depends on what’s out the window, and if there’s an 11-storey building that results in the 12th floor looking directly out at all the dirty, ugly A/C units on the rooftop, right at eye level, then I’d agree that there’s a $7,500 premium to being five floors up, and then some!

But if there’s nothing outside but a clear view, then I make no adjustment for the height difference, no matter what the owner paid in pre-construction.

“Getting high” is great when you’re a 16-year-old who hates math, and likes to skip school.  But is it really more advantageous to be on the 40th storey than the 23rd storey, when there’s no obstructions outside?

2.  View

This sounds similar to the point above, but it’s different.

What are you looking at?  Not just how high…

In my building, the west-facing units get a big premium because they overlook St. James Park, and the east-facing units from the west side of the building (it’s shaped like a square….), are a tougher sell, since they look into the courtyard, and you see cars below, and other people’s living rooms across the way.

How do you value that park view?

Let’s say you have two identical units – both 1-bed, 1-bath, 600 square feet.

Let’s say that the first unit faces west, and looks at the park.  You get a ton of natural light, you can see St. James Park, St. James Cathedral, the C.N. Tower, and all the skyscrapers of downtown Toronto.

And now let’s say that the second unit faces into the courtyard, and it’s dark, often loud with the trucks backing up below, and the person who lives 100-feet across the courtyard hang-dries his laundry in his living room, and you’re staring at underwear all the time.

Is it fair to say that the first unit is worth $350,000, and the second unit is worth $300,000?

More?

Less?

How do you account for the view, and what kind of premium do you put on that?

It’s much easier, of course, to compare two identical units, one with a premium view, and one without.  But what if you were looking at two different buildings, on the opposite sides of downtown, and one had a pure lake view, while the other stared a brick wall?  What if the second unit was 300 square feet larger than the first, and they were the same price?

A view is a very important feature of a condo, but not to everybody, and not nearly according to the same valuation.

Facing Trinity Bellwoods Park from 901 Queen Street West comes with a massive premium!  But is it worth it?  Does it add any additional enjoyment to the condo owner?  Yes, and no.  It all depends on the owner, and that’s why a view is exceptionally difficult to price.

3.  Outdoor Space

This one is tough, and just like everything else on this list, it all depends on the buyer.

The smallest “outdoor space,” is zero, which is effectively a Juliette balcony that technically counts as a balcony, because of the name, and the field on MLS, but doesn’t really offer outdoor space.

How do you value a door to nowhere?

Does it have any value?

If you compared two identical condos, and one person had a Juliette, and the other didn’t, you can almost guarantee that the owner of the Juliette balcony would demand a premium!

The smallest balconies with actual space are about 24-30 inches deep, so you can barely step outside.  They have a lot of these on the west side of 230 King Street, and I remember a client who found a bird’s nest with dead babies one day.  He said it was at that moment that he realized how useless that balcony was, given he had never actually set foot on it.

The smallest useable balcony is probably about 5-feet deep, and they can come in any length, but five feet is the standard depth.  So let’s say you’ve got a 5 x 8 foot balcony; how do you price that 40 square feet of outdoor space, that’s just large enough to put out a bistro set, but not really be able to move on either side?  Is that $5,000?  $10,000?

What about a long, narrow balcony?  5-feet, but by 22 feet.  So you still can’t get a proper dining table outside, because the space is only 5-feet, but it’s long, so you can probably play shuffleboard or something.

At what point does the outdoor space become “useable?”

I have a client who says, “As long as I can get a tiny folding chair so I can read, that’s all I need.”  She literally needs a 4 x 6 balcony, and that can’t add more than $10K in value.  Can it?

To others, if they can’t get a 6-person dining table outside, then the space is worthless.

Then there’s the argument of “rectangle versus square.”  100 square feet, if it’s 10 x 10, is far more functional than 100 square feet, if it’s 5 x 20.  So that completely kills any shot at using the old “price per square foot” metric.

At what point does the space go from being a “balcony” to a “terrace?”  It can’t be by square footage, since again – a 200 square foot outdoor space that’s 5 feet by 40 feet is likely considered a “balcony,” since it’s long and narrow, but a 200 square foot outdoor space that’s slightly more than 14 feet by 14 feet is likely a “terrace” because of the shape.

Sadly, I think the dreaded “gut feeling” is the way to go, when pricing outdoor space.

I recall a condo at 533 Richmond Street West where the ENTIRE roof of the building is a 3,000+ square foot terrace that belongs to the Penthouse.  How do you price THAT?

4.  Second Parking Space

This comes down to “the law of diminishing returns.”

Or is it “the law of diminishing marginal utility?”

Perhaps a bit of both.

If a parking space is worth $30,000, and a condo comes with two of them, is the condo worth $60,000 more than the same unit with no parking?

It all depends on the condo.  And the buyer, of course…

If a $400,000 condo comes with two spaces, I can guarantee you won’t get full value for the spaces.  It’s supply and demand, the demand for two parking spaces among $400,000 condo buyers is non-existent.  A seller who is looking for “full value” will never find a taker.

The condo owner above, and the listing agent, I’m sure, will both say, “You can buy the unit and sell one of the spaces if you want.”  The problem is that parking spaces can take years to sell, literally, and you pay the same legal fees as you would for selling a condo, since the process is essentially the same.  You have to pay cash, since you can’t add a second deed to a mortgage, and who has $40,000 in cash that they want to shell out?

In my honest opinion, the seller of a $600,000 condo, with two parking spaces, is going to realize about half of the return on the second parking space, simply because the buyer pool doesn’t value it.

If you have a $2,000,000 condo, and parking space are going for $50,000 each, then I think it’s fair to say that the $2,000,000 condo, with two parking spaces, is worth $2,100,000.

But when I see a 1-bed, 1-bath, 700 square foot condo priced at $499,900 because it has two parking spaces, when the unit usually trades for $419,900 with no parking spaces, I think, “Good luck.”

5.  Superadequacies

Stop me if you heard this story, but a couple years ago, I visited an owner in my area who had a really nice 2-bed, 2-bath unit.  I asked her to tell me what upgrades she paid for, since that usually gives you a good idea as to how they value their own unit, and she said she paid $18,000 for the “smooth ceiling.”

Smooth ceiling?

Who cares about a smooth ceiling?

You know the “popcorn” ceiling you have?  The stucco bumps that you find in about 90% of downtown Toronto condos?

Well she paid $18,000 in pre-construction to get that ceiling SMOOTH!

The ceilings are 11-feet, by the way.  So consider how much less noticeable that is, when compared to a traditional 8-foot condo, and it should also be noted that I never noticed until she pointed it out.

Being the direct person that I am, I instinctively replied, “Yeah, but that’s not really worth anything.”

She smirked, and said, “Yes, it is.  It’s worth $18,000.”

She said so in a confident manner, but her confidence probably had less to do with any thought about a buyer, and how that buyer would value it, and more to do with how much less she herself would accept for the condo, in the event there was an offer.

$18,000 for a smooth ceiling?  No, I’m sorry.  You’ll never see that money back.

You could have had a peanut-butter sandwich for dinner, and it would have cost you $1.00, but instead, you chose to go out to Terroni, and you spent $80.  That was your choice, and I hope you enjoyed yourself, but that’s a personal decision about how to spend your money.

There are thousands of ways to spend money in a condo.

I’ll walk into a condo and the owner will say, “That’s a ten-thousand-dollar couch, and I’m willing to sell it with the unit.”

Great.  How is the $10,000 couch resale market these days, anyways?

When spending your money on condominium features, just remember that it’s not always a dollar-for-dollar return.  And if you’re spending on superadequacies, just make sure you enjoy them!

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Those are the items I have on my list, but if you have any others, feel free to list them below!