Here's why London's homebuyers could be paying over the odds - and how to fix it
Michelle Ricci, co-founder of property search engine Propcision, explains why London has got it all wrong
Pricing a home by the number of bedrooms could lead buyers to pay over the odds. In London, many home buyers use the number of bedrooms as one of the primary fundamentals in comparing prices of properties in the market.
However, this outdated metric of bedroom comparison falls short in the shifting landscape of the ever-shrinking London flat. Paris and New York have long understood that overall size matters, not bedrooms. Parisian home buyers price by square meter whilst New Yorkers shop by square foot.
At Propcision.com, we not only calculate the price per square foot of properties listed for sale in London but also rate the price against other similar size and type properties in the area –flagging over-priced and under-priced properties for the buyer’s attention.
By taking the price-per-square-foot and comparing it against other properties, one can easily uncover pricing differences. This, then, leaves the buyer to decide if one property is worth paying more.
When I worked in banking, we broke many financial instruments down to its most basic, fundamental component. This would provide a benchmark in which to add or subtract value.
When it came to property, there appeared to be a gap in the market as many people priced by bedrooms and not by the size of the property.
By pricing by size, it is up to the buyer to pepper that price with their opinion of how much more or less they would be willing to pay based on the particular features of the property.
With many residential development projects underway not only in London but throughout the country, it is important for the buyer to understand exactly how much more they are paying, per square foot. In some areas, we have seen wide jumps in pricing. If a home buyer only compares the number of bedrooms between properties, they will never expose these gaps and their rationalisation process will be flawed.
Take Lewisham, for example. There are two new residential developments within the same area – The Renaissance and the Portrait. When comparing one-bedroom apartments for sale in the past year, the Renaissance looks slightly cheaper at £340,000 versus £345,000 for the Portrait. A shrewd buyer could think they are paying £5,000 less for a one-bedroom in the Renaissance.
However, when comparing the actual size of the apartments, the one-bedroom Renaissance apartment is 487 square feet whilst the one-bedroom apartment at the Portrait is 553 square feet. Therefore, in terms of price per square foot, a home buyer is paying roughly £700 per square foot for a one-bedroom flat in the Renaissance versus £630 per square foot in the Portrait.
To put it another way, if the Renaissance was priced the same at the Portrait, then a one-bedroom at the Renaissance should be £306,000. Therefore, in reality, a home buyer is actually paying £40,000 more for a one-bedroom apartment in the Renaissance – a vast difference from the initial thinking of paying £5,000 less. A prime example of how pricing by bedrooms is misleading.
Everyone is willing to pay a bit extra for that perfect home, that ideal spot, that “something extraordinary”. However, when breaking the cost down per square foot, there comes a sobering point in a home buyers mind when they realise exactly how much more they are actually paying.
The price per each square foot isn’t going to capture all those little things about a property that make it special or more desirable. For example, it doesn’t account for any outdoor space or gardens, property condition, uniqueness, noise levels, spectacular views, etc.
However, it grounds a home buyer with a fundamental building block in which to compare prices so they know what they are getting for their money.
Michelle Ricci is co-founder of Propcision, a property search engine for London which allows users to compare the price of property in an area by square foot, flagging over-priced and under-priced properties for the buyer’s attention.