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Have you ever been townhouse hunting in NYC and come across the term Floor Area Ratio or FAR? Most home buyers in New York will never encounter this term and if they do it likely won’t be of much importance. The exception is if they are purchasing a home with the intention of flipping it. If the home is advertising that it has an excess floor area ratio to build, then it can be worth doing a FAR calculation. Savvy developers who want to maximize their profits should pay close attention to it, whether they’re planning to make use of it or not.
What is Floor Area Ratio?
The strict definition of FAR is the ratio of the total building floor area to the size of the plot. However, such a definition will fly over the heads of most people, so it helps to simplify it. In layman’s terms, FAR is the total floor area (including all the space covered by the floors in the building) divided by the total area of the land on which the building is set. When you multiply this number by the total area of land available to you, you get the maximum floor area that you can have built on this plot.
For example, if you have 6000 sq. feet of land and the building has just one floor then it has a floor area ratio of one. If the same building has two floors but each floor has just 3000 sq. feet then the floor area is still just one. Its purpose is to serve as a zoning tool to allow developers some creativity in how they wish to build their structures. At the same time, it also limits the total amount of floor space on a lot.
Why is the Floor Area Ratio Important?
Savvy buyers who know how to make the most of FAR can reap big profits. For instance, if you buy a property with extra floor area ratio, you could add extra stories or frontage to the building. This can be very beneficial if you purchase property in a pricey neighborhood with a high average price per square foot. If the building has a lot of excess FAR, it may even be a good idea to tear the building down and build a new one from scratch to maximize FAR.
What if a building has FAR in excess of its maximum limit?
If you encounter a building that has a FAR more than maximum limit it could be in violation of local zoning ordinances. If you notice this in a building you are considering buying, then you should have your lawyer perform a due diligence check. Otherwise, you could find yourself stuck with having to fix the violation out of your pocket.
If you’re in the market for a townhouse, it should already be mandatory to have a home inspection done. This will alert you to any defects such as structural problems, electrical issues or a FAR in excess of its maximum limit.
Anyone who is planning to purchase and flip a property should take note of the floor area ratio. It can either mean profitable renovations or a loss if purchase a property more than its FAR limit. Keep in mind, that even if a property is not using is maximum FAR it still represents value.