Floor Multiplier: Valuing Low Floor vs High Floor
A: Originally posted on Dec 15th, 2010 after requests on this topic - I got inspiration for this post from Paul Zweben of Elliman who publishes HungryDomaine.com. When I do a comps analysis for a buyer client I do four main types of adjustments to come up with some idea of a fair market trading range for the target property: a floor adjustment, a size adjustment, a time adjustment, and a renovation adjustment. For now, lets discuss the floor adjustment and what I like to call the Floor Multiplier.
Before I began I want to start out by saying that any type of floor adjustment is an imperfect science. There is no hard and fast rule and since the market doesn't exist in a vacuum, its impossible to predict how any one buyer will ultimately value the light/view/exposure differences between the TARGET APT and COMP-A, or COMP-B.
With that said, we need to try right! Most new developments during the boom got in the habit of adding approximately $15,000 - $25,000 per floor in premiums for the luxuries of more sunlight and nicer views that come with higher floor units. For existing resale its a bit trickier so lets delve into this.
There are two main elements in figuring out what kind of floor multiplier you should use when doing a comps analysis to what hopefully is a same-line sale (same footprint, different floor): TYPE OF CHANGE IN VIEW and AMOUNT OF GAP IN FLOORS.
TYPE OF CHANGE IN VIEW: When comparing two in-building same line comparable units we need to determine the level of change in the view quality. In other words, is there a drastic difference in the view or is there no difference in view? Lets take two hypothetical examples to explain this point:
a) Drastic Change in View Quality --> The difference between Unit 3A and Unit 25A, that share the same footprint and exposures. Unit 3A is on a low floor and does not clear the opposing buildings, limiting both the natural sunlight and the quality of the view. Unit 25A completely clears all nearby buildings and offers full city views and is flooded in sunlight.
b) No Change in View Quality --> The difference between Unit 22A and Unit 25A, that share the same footprint and exposures. While there is a 3 floor difference, both units offer the same quality of view and same level of natural sunlight.
Make sense? Ok, lets move on to the next item to take into account.
AMOUNT OF GAP IN FLOORS: We have to be cognizant in the gap in floors between the target apartment and the comp. For larger gaps, we need to lower the floor multiplier or risk over-estimating the premium that a higher floor unit can absorb on the open market.
a) Small Gap in Floors -->: Lets call it the difference between Unit 3A and Unit 6A. In this scenarios we should maintain the floor multiplier or in some cases, raise it a bit if there is a drastic change in view. Think about it, if there is a 4 story building opposing these two units that limits Unit 3A but does not affect Unit 6A, we should properly add that in even though there is only a 3 floor difference.
b) Big Gap in Floors -->: Lets call it the difference between Unit 3A and Unit 25A, a 22 floor difference. Now if we stick to the $20,000 or so a floor premium in this scenario, then the 25th floor would be valued about $440,000 more - clearly that is unrealistic and something that cannot be absorbed in the open market. So, if there is a big gap we should lower the per floor premium a bit so as not to over-estimate the premium that is likely in the open market.
Hopefully your still with me and keep in mind that this is how I view comps analysis for my buyer clients - over time you start to get a natural feel for it.
If I were to plot all these out into a table, it would look something like this:
DRASTIC CHANGE IN VIEW/SUNLIGHT
BIG GAP: Use $7,500 to $12,500 multiplier per floor
SMALL GAP: Use $20,000 to $25,000 multiplier per floor
NO/MINOR CHANGE IN VIEW/SUNLIGHT
BIG GAP: Use $5,000 to $7,500 multiplier per floor
SMALL GAP: Use $10,000 to $15,000 multiplier per floor
An example from above would value Unit 25A about $30,000 more than Unit 22A where there is virtually no change in view. Also, we would value Unit 25A about $165,000 more than unit 3A where there is a drastic difference in view and amount of natural sunlight.
I find that the most coveted properties (think Madison/5th Avenue types) will value higher floor units at a even higher multiplier than what I show here. For example, in a coop on 78th and Madison where a high floor unit gets a park view but a lower floor unit doesn't, I would go as far as using a $30,000 to $45,000 per floor multiplier to properly value the unit with park views. Again the market is a living thing and doesn't exist in a vacuum. In the end any unit is only worth what someone is both willing and able to pay for it. That leaves us brokers, buyers and sellers constantly wondering where that ultimate bid will eventually come in to value the property. In the meantime, this is the next best guess that I feel confident enough in to publish here on UrbanDigs!