What gives us more expertise than the broker who sold you your apartment, or the agent who advised you to purchase it? Over the years, we’ve helped clients buy and sell many homes with terraces and like most agents, we originally paid only nominal attention to the outdoor space itself. However, after dozens of these transactions, a few absolute truths became obvious to us. First, that everyone desires private outdoor space; and second, that not all terraces are created equal.
With these two facts in mind, we began to research the ways in which outdoor spaces differ and how these differences are reflected in the prices of the homes they belong to. Almost immediately, we realized that many people—including brokers—have a hard time distinguishing between balconies and terraces. As a result, no database or search site properly identifies and categorizes them. The difference between terraces and balconies is simple: All terrace are setbacks. All balconies are appendages.
Why does this matter? It matters because terraces are typically larger and more functional providing greater utility as a living and entertaining space. For example, if you want to hold a dinner party for 8 people you are going to need a terrace- not a balcony. If you want to have an outdoor kitchen, a fireplace, a green outdoor space, or even a hot tub, you are going to need a terrace- not a balcony.
Even more surprising than the widespread mislabeling is the fact no one seems to have comprehensive data on terraces and how their unique characteristics factor into their valuation; even appraisal firms don’t have consistent valuation information. Typically brokers and appraisers value a terrace at between 25% to 50% of the interior space. This rule seemed too simplistic, so we started quizzing appraisers. Unsurprisingly, they take a more analytical approach. Before determining the value of private outdoor space, they usually consider 5-6 different factors.
Among the appraisers we spoke to, there were three universal terrace evaluation criteria: size, location in relation to the living area, and livability. However, each appraiser had their own 2-3 unique and varying criteria beyond these three universal categories. Drawing from this wide range, we compiled a list with 19 important factors, and then grouped them into five main categories for a total of 95 criteria.
Once we set our criteria, the real fun started. We searched all the databases we could access and found more than 21,000 listings (both active and closed) claiming to have a terrace. Then, over the course of two years, we reviewed every single listing manually, scored them in each of the 95 criteria, and calculated their square footage. While scoring every entry, more than three quarters of the original 21,000+ listings were excluded because they had balconies or shared roof decks, rather than a private terrace.
As a result of this Herculean effort, we now have our own proprietary database with 5,720+ individually verified apartments with private terraces in Manhattan. This database represents the most comprehensive and detailed list of both active and off-market terraced homes in Manhattan. Through all of the data we’ve parsed, we’ve learned that appraisers are correct in looking at the size, location, and livability of terraces to get a rough idea of value. However, we have also learned that considering these groupings alone only gets you so far.
In terms of size, total square footage of terraces is very important, but because not all square footage is created equal, the practicality of each square foot must also be considered. For example, will the terrace accommodate a dining table? What about outdoor furniture? The answers contribute to the terrace’s usability. When it comes to the location of the terrace, instead of classifying terraces using only two location designations (either off of the living space or roof-level), we have—through close examination of over 21,000 homes with outdoor space—identified five distinctly different terrace locations in relation to living space. The livability of a terrace—including unique characteristics such as outdoor kitchens, fireplaces, pools, and hot tubs—can also make a substantial difference in the evaluation of the terrace and the home it is part of.
Through our exhaustive research, we are able to confidently say the value a terrace adds to its home depends on how it scores on our 95-point scorecard using 19 criteria across 5 location categories. We call the combination of factors that impact a terrace’s value the “staircase effect,” because after all… not all terraces are on the same level.
Questions and comments welcome. Contact The Terrace Experts here.