We recently sold an apartment for $382,000 in an inner-city building of a reasonable size. There’s usually a handful of apartments either on the market or recently sold at this address, so the prospective buyers used info on these to calculate their opening offer – of $320,000. This wasn’t just a negotiation tactic. This couple were genuinely of the view that having assessed the sales rate per square metre of the other apartments their offer was “market value”.
It seems like a simple way to do things: divide the sale price by the size of the apartment, then apply it to the next one. For example if it’s a 2 bed, ensuited place for $500,000 place that’s 100m2 we’ll take that $5000/m2 and use it on the 1 bedder that’s 70m2. But there’s a number of problems with the theory and they all come back to what it is that we place a value on when we buy. Views and elevation. Standard of finish and condition of the home. Numbers of bedrooms and bathrooms. And the list goes on.
So as much as it would be an easy way for home buyers to determine value, rate per m2 is rarely accurate unless the apartments are very, very similar. Two apartments in the same building have the same “base value” regardless of their bedroom numbers, because they both offer a place to sleep in that location. You’ll fit more people into a larger one of course, but if you double the size you’ll rarely double the price. This is why property developers often make great margins on small apartments and have bigger designs in their mix often for little more purpose than to help broaden the market appeal and ensure the project’s not perceived as ‘low-end’.
That couple upped their offer by more than $60,000 once they stepped back to think about other apartments that were truly similar. And of course an offer from another interested buyer helped prompt their decision too!