Determining The Right Price

Feb 10, 2010
Antonis Hontzeas

The past year witnessed a 70% drop in real estate transactions in Athens Greece. Prices on the other hand remained relatively frozen, experiencing a drop of about 5% in Athens municipalities, even though the market has been anticipating a long awaited 30% correction (which may, or may never come).

A successful transaction can only take place if both buyer and seller agree on the value of what is offered and set the conditions for a win-win scenario. The chief determinant of such a scenario is the price.

Since certain apartments are overpriced, determining the right transaction price can prove to be a complex labyrinth with key determinants seller expectations and buyer perception.

Step 1 : The price per square meter

The first price determinant of an Athenian apartment is the value per square meter, or euro/sm with respect to the target municipality where the apartment is located in. This price can be determined by calling your local real estate agent, by looking it up in market reviews, or by asking the municipality urban planning responsible.

Multiplying the price per square meter by the number of square meters gives you present value of a newly built condo, ground level. The resultant price includes basement car parking and basement independent storage space (say about 8 to 10 square meters).

Step 2: Take into account the level of the apartment in the condominium

If the new apartment (which again includes parking and storage) resides on the ground floor, or is an independent house, then step 1 gives you the approximate price. An additional 5% to this price is required per floor so if the apartment is on the third floor this means that the price is 15% added to the result of Step 1.

Step 3: Take into account age depreciation

Since concrete and building materials age and depreciate (as opposed to land which appreciates) in time, one needs to make the necessary correction. A 20 year old apartment in the same location costs less than a brand new apartment ceteris paribus . A general deduction of 10% per decade on the result of Step 2 should cover more than enough the age depreciation.

Step 4: Renovation Costs

After completing step 3, necessary renovation costs also reduce the selling price of the target apartment. Usually a 30 year old apartment requires about 40,000-50,000 Euro to renovate taking into account the floor, the windows and doors, electrical and plumbing deterioration, bathroom and wash closet renovation and general changes to bring the unit up to modern tastes.

Step 5: Parking and Storage

If the unit does not include parking and storage, then the appropriate deductions need to take place in order to render the unit price competitive. The prices depend on the market and municipality;in Agia Paraskevi deductions can reach about 25,000 Euros.

Putting it all together with an example

Say that the apartment of interest is 115 square meters on the second floor with parking and storage space, resides in the posh municipality of Agia Paraskevi (3000 euro/square meter), and is 30 years old.

Step 1 : The value of a ground level new apartment in that area is 115m x 3000 e/sm = 345000 euro.

Step 2 : Since the apartment is located on the second floor, we need to add 10% to the above sum: Our new sum is 345000+34500 = 379500 euro.

Step 3: Since the apartment is 30 years old, we need to deduct 30% from the above value : 379500 – 113850 = 265650 (step 3).

Step 4: If the apartment needs general renovation (again this depends on the “health” of the apartment and local renovation costs) then the new price is 265650- say 50,000 = about 215,000 roughly.

Since parking and storage are included, the market price of this apartment is roughly 215,000.