Matrix Blog

Amenities, Adjustments & Value Logic

[ChartFloor] Manhattan Price Per Floor Breakdown

June 9, 2010 | 6:18 pm | | Favorites |


Floor pricing has been the stumbling block for credibility with automated valuation models (appraisal replacement tools) used by banks and for services like Zillow. StreetEasy gets it right, in the way they display information – grouped by building so the patterns are apparent.

Matthew Strozier over at The Real Deal Magazine asked me to crunch apartment prices to show some sort of floor level relationship to value. I took the down and dirty approach (because SPSS is way over my head) and looked at all closed co-op and condo sales in 2009. I broke those sales down by floor level and crunched the metrics for each floor. The results are seen in this very cool chart. Click on the graphic to the right that TRD created to open the big version.

  • First Column – % share of units on that floor compared to all sales in 2009
  • Second Column – floor level
  • Third Column – Average Price per Square Foot of all sales in 2009 on that specific floor.

Some observations

  • 1st floor – 19.3% jump to the second floor reflecting concerns about security, privacy, and noise levels.
  • 2nd floor – 11.4% jump to the third floor reflecting concerns about security (scaffolding), privacy, and noise levels.
  • 7th floor – jump reflects penthouse and roofline breaks from adjacent 6 story buildings.
  • 13th floor – data suggests only 18.4% of buildings with a 13th floor actually call it that.
  • above 13th floor – market share declines with height, reflecting fewer apartments and the floor level price per square foot continues to rise.

In addition, the erratic price per square foot patterns on the higher floors reflect the differences in views. In our appraisals, we make adjustments for floor level and view separately.

I ended the presentation at the 25th floor only because the data set gets so thin that it was more difficult to extract or infer a pattern.

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[Terra Logic] Understanding The Value of Manhattan Apartment Outdoor Space

May 5, 2010 | 9:19 am | Favorites |


Through the process of valuing terrace space in Manhattan since the mid-1980’s we developed a logic or valuation methodology for this amenity. I am asked to explain the process several times a week and it finally dawned on me to write about it (I can be slow to the draw sometimes).

Back in the mid-1980’s when we began our company, attempts to value terrace space by the real estate community (appraisers and agents) was approached as a lump sum dollar value rather than establishing a relationship with the value of the interior space of the apartment itself (ie that particular terrace is worth $50k) which I derided as the PFA (pull from air) approach.

Outdoor area was valued quite primitively as fixed asset, with little consideration to variations in size (other than “small” and “large”) and its relationship to the apartment it was attached to (the same logic was incorrectly used with roof rights). We would see large terraces attached to one-bedroom apartments treated the same as if it were attached to a 12 room apartment. Crazy.

In fairness, this “terra logic” wouldn’t have been possible without the evolution of price per square foot as a core price metric in Manhattan. Market participants were talking and thinking about it but it wasn’t formally analyzed. We were the first appraisers to introduce price per square foot for co-ops in our appraisal reports by presenting all sales within the building to bracket the price per square foot of the subject apartment, and the first to introduce it into our market reports as a formal analysis. It was difficult because square footage is not a matter of public record and most co-op listings did not include square footage. We had amassed the information during our normal course of business.

Gotta love the completely ridiculous valuation metric “price per room” which admittedly we used in the early 1990’s in our first market reports until it morphed into price per square foot. Incredibly, price per room is still presented today. Imagine a buyer telling a broker “I won’t pay a dime over $135,000 per room.” Good grief.

Valuing Outdoor Space

We have found that a ppsf analysis on finished terrace space is generally a reliable form of valuation to determine what the terrace area contributes to the overall value of the apartment being appraised. Its a relational value – if the apartment is worth more, that carries over to the outdoor space. This logic applies to patios, garden areas and balconies. Doesn’t matter whether it is a co-op, condo, highrise, lowrise or brownstone.)

Here’s how

  • Estimate the ppsf of the property without the terrace
  • The general relationship between finished terrace space and interior space – terraces are typically valued at 25-50% of the ppsf of the interior space.

For example – if the interior space was worth $1,000 psf, without considering the terrace, the outdoor space could be worth as much as $500 psf (50% of interior ppsf). If the terrace is 500 sqft, the terrace could be worth $250k ($500/sf x 500 sq ft).

That’s the basic idea. Simple. Of course there are many other factors such as:


  • Depth – a 500 sq ft could be a deep terrace or a shallow 2 ft deep wrap around – same sq ft but different value.
  • Location – a 2nd floor terrace overlooking a busy north/south avenue has more noise and soot as well as a lower perception of security
  • privacy – space that is not formally separated from the adjacent apartment terrace space has lower value
  • Obstructions – such as a parapet that blocks the view from the terrace. View itself is NOT a terrace amenity since it is considered in the ppsf of the apartment. A skylight or risers are usually deducted from the square footage.


  • Oversized space – if the terrace is greater than 50% of the interior space, the ppsf contribution falls off considerably for the additional space over the 50% threshold. For example 700 sq ft 1-bedroom apartment with a 3,000 sqft terrace – only about 350 sq ft has any meaningful value (of course, if the maintenance charges reflect the entire terrace, any value of the terrace would be wiped out.


  • Primary amenity – The patio or garden in a ground floor brownstone or apartment – use the same logic as when considering a terrace in a penthouse apartment.

Comparing apartments with and without outdoor space

One of the reasons penthouse or any apartments with significant outdoor space sell for a higher price per square foot is that the sq ft denominator in the price per square foot equation only considers interior square footage. To create more parity between the two types of apartments for comparison purposes, calculate the adjusted price per square foot of the apartment. In order to do that you need to theoretically convert the outdoor space into interior space.

In the prior example, we said the terrace was worth 50% psf of the of interior space ($500 v. $1000). Use the same relationship with size and give the space full credit for interior space by taking 50% of the terrace space (500 sqft x .5 = 250 sqft) and add it to the existing interior square footage: 1,000 interior square feet + 250 interior square feet representing 500 square feet of terrace = 1,250 adjusted square feet.

This makes it easier to compare units with and without terraces and is predicated on the whether your % discount assumption for your exterior space is correct.

UPDATE (May 17, 2016): Although I wrote this post almost exactly 6 years ago, it still represents how my firm and I approach the valuation of outdoor space in New York City. It has been a thirty year run – using the methodology I created in the 1980s that still reflects market conditions today. One new observation – we have seen developers of a few luxury condominiums attempt to market outdoor space square footage on par with the interior price per square foot of the adjacent unit. While there was some random traction a few years ago, it was not adopted as a market wide pattern. Given the current slowdown in the absorption of high end condos, I have not observed this pricing strategy under current conditions and believe it won’t be used going forward. Of course if I observe a market-wide change, it will be chronicled here.

Disclaimer: No comments by an appraiser would be complete without a disclaimer. It is important to note that these are only rules of thumb to guide you – the value of a terrace is not formula driven – these relationships are developed from market data and can vary significantly depending on the combination of amenities and time. If you are unable to grasp this, close your eyes very tightly, think about a cool ocean breeze on a warm breeze sandy beach, while holding a large set of perfect comps, until memories of this post fade completely away.

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[Central Park v. Detroit] $363,538,692,000 v. $4,500,000

October 26, 2009 | 11:57 pm | |

Source: Google Earth

Back in 2005, I did a fun exercise for New York Magazine – I was asked to value Central Park (just for fun) in about 3 minutes. It was within an article that ranked the reasons to love New York and was item number 3.

The New York Observer recently asked me to update this calculation using the same methodology (in 3 minutes and just for fun) and I came up with $363,538,692,000 which is a far cry from $528,783,552,000. The same disclaimers apply as the original effort, seriously.

To put this in perspective, about 9,000 Detroit properties were auctioned (hat tip WalletPop) with opening bids of $500. Only 20% received bids. The total land area of these properties was equivalent to Central Park. If all 9,000 properties received a bid of $500 (which is probably not far off if you assume the 20% that received bids were over $500 and the rest $0), that represents a total value of $4,500,000.

Thats’s not much of a value and these properties also pull down values around them – plus they are off the tax roll placing more financial burden on existing properties.

Not a good sign
Most of the bidders were investors and vacant land in Detroit equals the entire footprint of Boston.

As much as I love my time spent in Michigan and my relatives there, I believe this is called an economic failure spiral.

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[The Hall Monitor] The Argument For Seasonal Time Adjustments

May 12, 2008 | 3:59 pm |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

This week Todd adds some seasoning to the time adjustment concept.

…Jonathan Miller

Here is a comment you will find in many residential appraisals “A lack of more recent sales required the use of sales which are more than six months old”. The apologetic nature of this comment implies that “recent” (meaning sales occurring within six months of the valuation date) are always better indicators of value than those which took place more than six months prior. The “logic” of using the most recent sales available would be sound if market conditions (i.e. price levels) changed on a straight-line basis over time as opposed to on a seasonal basis. But in many, if not most, residential markets that logic is flawed and the six month “guideline” should be thrown out.

The graph below is from the Westchester County Board of Realtors Sales Stats and it clearly demonstrates that for single family houses in Westchester County selling prices in the second and third quarters were significantly and consistently higher than in the first and second quarters over the last five years. Property values did not increase in a straight line with prices every month higher than the month before. Even during this “boom” market, prices went up AND down during the year depending on the season.

The seasonally based serpentine line of one quarter followed by the next straightens out remarkably if you connect the dots from first quarter to first quarter, second quarter to second quarter, etc. Any adjustment for market conditions must be based, first and foremost, on seasonal differences between the valuation date and the dates of the comparable sales. The appraiser must also consider that the “meeting of the minds” between buyer and seller precedes the closing date by sixty days give or take, and comparable sales should, to the extent possible, reflect similar seasonal conditions. If the subject property is being valued as of June 1, 2008, I would argue that in terms of market conditions, the sale which closed August 1, 2007 (ten months old) is a more reliable indicator of value than the one which closed February 1, 2008 (four months old).

So the next time your client insists on your using more “recent” sales, take the opportunity to explain the seasonal fluctuations in selling prices (if indeed they occur in your area) in defense of why your ten month old comparable is more reliable than the four month old sale you didn’t use.

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[The Hall Monitor] Appraisers And Micrometers Don’t Mix

June 11, 2007 | 1:12 pm |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Grievance Day, now more popular than Thanksgiving, is fast approaching and Todd laments how incredibly accurate some appraisers manage to be. …Jonathan Miller

For property owners who believe their assessments are too high, June 19, 2007 is Grievance Day. (This is for Towns in New York State Cities and Villages have different calendars) What this means for me, as the appraiser in an assessor’s office, is I get to review a few hundred appraisals done on behalf of the allegedly aggrieved owners. This can be a difficult time because frequently the property owner has a legitimate case, even when the appraisal they’ve paid for isn’t worth the paper it’s printed on.

One of this year’s top ten was an appraisal of a typical Split Level house built in the 1950’s. All of the comparables were, likewise, built in the 1950’s. However, this appraiser was SO GOOD that he was able to deduce from the market that a house built in 1953, which sold for $710,000, required an adjustment of -$400 when compared with the subject, which was built in 1951. (In his defense, this appraiser was consistent in that the age adjustment was $200 per year for the other sales as well, since they were all a few years newer than the subject.)

One of my many pet peeves is that appraisers make too many adjustments and the adjustments they make are too small. In the case of the age adjustment alluded to previously, the $400 adjustment amounts to five one-hundredths of one percent, or 0.0005, or five ten-thousandths, or one two-thousandth whichever way you want to put it – it suggests a level of precision Pratt & Whitney would be proud of but which is well beyond the reach of a real estate appraiser. When it comes to the tolerances within which various craftsmen work, they say carpenters work to the nearest eighth of an inch, cabinet makers work to the nearest sixty-fourth of an inch, while boat builders work to the nearest boat. I’m not sure exactly where appraisers belong, but I am sure they shouldn’t be grouped with people who work in machine shops building parts for jet planes, space shuttles, and stuff like that.

Although there are FANNIE MAE guidelines as to the maximum adjustments allowed, I’m not aware of any pertaining to minimum adjustments. The realities of market dynamics today are such that it is frequently necessary to exceed those maximum recommendations in order to reconcile differences within a given neighborhood, where it is not unusual to find a range of value wherein the highest sale prices are twice as high as the lowest (if not more). And the higher up in price you go the wider the range becomes.

Consider the newly renovated, pre-war, 6,000 square foot, brick mansion in a desirable suburb near New York City which sells for $5,000,000. A similar building which has not been renovated may sell for $2,500,000 to $3,000,000, warranting a condition adjustment of 40 or even 50%. At first glance some may think this adjustment excessive. But keep in mind that a renovation on this scale typically requires a year’s work (during which time the owner is living elsewhere, and paying the cost). All the risk inherent with a job of this scale combined with the unknown aspect of just how it’s going to look when it’s all done these and other factors fully justify the need for substantial adjustments.

And yet it is rare to see an appraisal with adjustments in excess of those outdated 10% individual, 15% net, and 25% gross guidelines. No matter how necessary they may be, the appraiser has to “explain” them. But no explanation is needed when the appraiser/machinist makes five different adjustments, each of which amounts to less than 1% (sometimes much less than 1%) to the comparable sale.

How about setting a standard for the minimum allowable adjustment? I’d vote for 3% but I can live with 2%. Surely, we can at least agree on no adjustments of less than 1%. Nobody’s that good!

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[The Hall Monitor] Adjustments For The Maladjusted

March 5, 2007 | 10:53 pm |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd twists the knob and makes a line item assessment on the relevance of appraisal adjustment guidelines. …Jonathan Miller

Who came up with the insane “guidelines” for what constitutes appropriate adjustments on the sales comparison grid? What alternate universe were these people living in when they decided that the total net, gross, and individual adjustments should not exceed 15%, 25%, and 10% respectively? They certainly didn’t live anywhere in the New York area (and if they did it was more than 50 years ago).

Let’s start with the 10% individual adjustment. A friend of mine just renovated her kitchen at a cost of about $75,000. Let’s assume the value of the kitchen is the same as its cost. After the renovation the value of the house is $650,000 She has an appraisal done after the kitchen is renovated and the appraiser finds an identical house as a comparable, except it has the original kitchen. Under the above scenario therefore, the comparable would have sold for $575,000. The appropriate adjustment for the new kitchen would be $75,000, or, 13% of the sale price. Unfortunately, the appraiser will have to “explain” why this comparable sale, which is otherwise identical to the subject, requires an adjustment in excess of the 10% FANNIE MAE guideline, when in fact it is a great comp with only one adjustment needed!

What’s wrong here is the arbitrary and capricious 10% guideline and the fact that adjustments exceeding it require explanation, when in reality, such adjustments are often fully warranted and should be common in many cases. The gross and net guidelines are likewise, contrary to reality in many markets. These guidelines were once appropriate in places like Levittown when Levittown was first built, though probably not even there any longer. Like every other community, Levittown has evolved over time and its houses are no longer identical to one another.

In the world as it exists today, reconciling the sale prices in a given market frequently requires adjustments to comparable sales WELL IN EXCESS of FANNIE MAE guidelines.

The thing that got me started writing today about the size of adjustments was not the guidelines relating to the recommended maximums, but instead the incredibly small adjustments made by so many appraisers. On a regular basis, I see adjustments to sales with prices of $650,000 at increments as small as $2,000! What appraiser is so good as to know that a sale warrants an adjustment of less than one third of one percent?

A lot of times I find these adjustments under the site category. Subject is 0.11 acres and sale #1 is 0.13 acres. “Appraiser adjusts for site differences at $1,000 per hundredth of an acre”. Never mind the fact that he doesn’t address the shape or topography of the lots, the mere fact that he makes such a miniscule adjustment suggests a distinction without a difference. Why bother making an adjustment at all in such a case?

My suggestion is this. Abolish the guidelines for “maximum” gross, net, and individual adjustments and replace them with “minimum” adjustments (for the individual adjustment anyway). An appraiser who makes an adjustment for less than 2% of the selling price of a property must correctly answer the following question: Does the phrase “anal retentive” take a hyphen, or not?

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Penthouse Article In New York Living

July 5, 2006 | 12:05 am | Articles |

An article I recently wrote on the penthouse market, Penthouse Living: On Top of the World, appears in the July-August edition of New York Living magazine. I have been writing for them periodically over the past 4 years.

The magazine contains a lot more than pretty pictures (and there are a lot of those). There’s great information on various types of residences in the New York market and region, especially concerning luxury and new development.

Download article.

For urbanites, its safe to say that many aspire to be on top of things, and that goes for their apartments. Penthouses seem to fit the bill, but also, how is a penthouse apartment defined? The term “ penthouse” as a marketing label, implies exclusivity, cache and uniqueness, yet as an apartment type, its definition remains elusive. Besides their “elevated” status at or near the top of a building, penthouses tend to be uniquely configured, have open views, outdoor space and other unique amenities which may include above-average ceiling height, multi-level configurations and fireplaces…

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I See Dead People And They Want Me To Make An Adjustment

February 13, 2006 | 12:01 am |

In the article Do you see dead people? Disclose it [Realty Times] Most states’s disclosure laws don’t deal with the forms the deceased take in the afterlife, but they do address death as a stigma. The one exception is death caused by AIDS. Federal law define’s AIDS as a disability and such a disclosure could be deemed discriminatory.

Randall Bell, founder of Laguna Beach, CA-based Bell Consulting, which analyzes the impact of detrimental conditions on property values, says secrecy about specters and other conditions only adds to the fear. Public disclosure has a cathartic effect that helps remove any shroud of secrecy

I have spoken to appraisers around the country on this issue and I have been told some stories of tragedies in houses that have made my skin crawl. Its hard to believe that a buyer, after being told some of these stories, would not apply some sort of discount to the value. The difficult lies with supporting such an adjustment as an appraiser since these incidents (hopefully) occur few and far in between.

In a similarly titled article in Valuation Review About 30 states have specific laws on the books saying that agents and sellers cannot be held liable for not disclosing such nonmaterial, or nonphysical, “defects” about a house.

Depending on the status of the current real estate market, the stigma would fluctuate. It is unlikely that a murder or suicide, or rumors of a haunting in a house would not have an affect on the market value of the property. The Scott Peterson house sold quickly last year, but that may be due to the fact that the murder did not occur within the home and that the housing market at the time was very short of inventory.

In the late 1980’s we were familiar with a house in Manhattan where the owner murdered his family. This incident was discussed in the local broker listings and it was our feeling that the value was impacted by about 10% at the time. That discount may or may not be relevant today.

We have seen stigma adjustments quoted by other experts in other markets be as high as 30%. Quite often, the property is torn down and the land becomes the true asset in the transaction.

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The Changing Values Of Renovations

January 9, 2006 | 9:15 am |

The housing boom has changed the relationship of renovations to value. In most markets, the cost of renovations (within reason) is less than or equal to the value added to the property. As appraisers, we develop comfort levels of contributory values that renovations may add to the overall value of a property we are looking at. Well, the relationship of renovations will likely change (and may already have) as the market leaves the boom.

There are no long term rules of thumb in valuation since the cost versus value relationship is always changing.

In the article Is it worth it? [Cape Cod Times] the writer explores what renovations add most to value. The orientation in this article is towards older homes, which are more predominant in the Northeast than in other parts of the country.

Some updates add to value, others may reduce marketing time and yet others may diminish from value. The rising costs of labor building materials have made this issue more important than ever to property owners.

One of the basic criteria I always consider is whether the update is neutral in terms of taste and design in order to appeal to the widest segment of the market. The more personalized the update, the less it adds to the contributory value of the property.

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Central Park: No Price Can Be Attached To The Center Of The Universe

December 27, 2005 | 12:01 am |

In case readers of Soapbox missed this post in my other blog, Matrix Central Park: No Price Can Be Attached To The Center Of The Universe I placed it here as well.

Courtesy of Satellite Imaging/New York Magazine

One of the reasons to love Manhattan is clearly Central Park. New York Magazine asked us to venture a wild guess as to what Central Park was worth in the article Reasons to Love New York: Because We Wouldn’t Trade a Patch of Grass for $528,783,552,000.

So there is no confusion, this is a purely hypothetical, far-fetched, non-scientific wild guess based on so many caveats (and done in about 3 minutes) that reality doesn’t enter into the equation so we are not violating any licensing requirements…got it?

After the dust settled, here’s the math used.

Webmaster’s Note: Its quite possible, and highly likely, that the net value of all of Manhattan would be less after Central Park was developed. A very high level of inventory that might take decades to absorb would be created, but assuming instant absorption, units facing the park would lose their views, proximity to the park would not matter anymore and a cultural and recreational resource would be lost to all homes in Manhattan. In other words, it would likely be bleak on the real estate front.

Imagine Central Park on the real estate market [The Real Deal]
Appraised value of Central Park: $528,783,552,000. Sell! [Curbed]

Central Park: $528.8 Billion [The Walk-Through]

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A Taxing View Leads To A Revolt

October 31, 2005 | 9:48 pm |

In New Hampshire, town assessors are beginning to treat view amenities as a separate line adjustment. The idea is that if a property has a value premium because to its views, it is taxed over above other properties. In some markets, the view adjustment is a separate line item [Washington Post]

The concept here is that the overall value must be accurately reflected. It appears that the view amenity was not fully accounted for and it was significant enough for the state to itemize the adjustment which was the subject of the recent complaints.

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Adjusting for Dragons

October 25, 2005 | 12:05 pm |

Submitted by John Mason, an appraiser…

Hey Folks:

So how much do you adjust for a 15+/- foot high, solid wood, hand carved dragon? It looks like the neck and head is from the base of an old tree trunk (still attached to the roots) with the wings and tail from the upper sections of the tree, which were then attached to the base.

Imagine if your subject property looked directly at this!

Webmaster’s note: Please send along your ideas for unusual items you have had to adjust for…

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