Have you ever wondered what the difference in pricing is between a 1 bedroom and a 2 bedroom condo? What about upgrading from a 2 bedroom to a 3 bedroom unit? Today we've tried to answer this question by breaking down the average condo sale prices in and around Boston in the past 12 months. We are using a fairly simple methodology here and excluding all other factors except number of bedrooms. So condition, square footage, and number of bathrooms are not accounted for here.
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The most shocking statistic taken from this study is the huge increases seen in the Back Bay when adding bedrooms. The average sale price in the Back Bay more than doubles when increasing from 1 bedroom to 2 bedrooms and from 2 bedrooms to 3 bedrooms respectively. This doubling represents a staggering increase of $692,620 when adding a 2nd bedroom and an increase of $1,322,917 when adding a 3rd bedroom. Compare this to a neighborhood like Brighton where space is at much less of a premium and you only see a price jump of 40% from 1 bedroom to 2 bedrooms and 36% from 2 bedrooms to 3 bedrooms.
Boston's South End represents the 3rd huge increase seen on the chart as the average sale price more than doubles when moving from 2 bedrooms to 3 bedrooms. What this underscores is the relative scarcity of condos in the South End with the space to support 3 bedrooms. In most neighborhoods we see diminishing returns with each added square foot and bedroom. Essentially every square foot (and to an extent every bedroom) is worth a little less than the one before it. If we extrapolate this out far enough you will eventually see no financial benefit for adding space and bedrooms. Think about this in terms of going from 11 bedrooms to 12 bedrooms, are you adding any additional value for the vast majority of buyers? Probably not. In turn this 12th bedroom adds little to nothing to the price. What we see in the South End contradicts this principle as the market forces have dictated a higher price increase when adding a 3rd bedroom than what we see when adding a 2nd bedroom due to the extremely low inventory of large units in the neighborhood.
Now let's look at South Boston, widely known as one of the hottest markets in all of Boston. There we see a fairly typical 50% jump in average sale price from 1 bedroom to 2 bedrooms but only a 24% jump from 2 bedrooms to 3 bedrooms. Why the huge difference between the two? South Boston is known for it's popularity with young professionals and these buyers are increasingly more likely to opt for the lower prices of a two bedroom due to a decreased need for the extra space afforded by a three bedroom. With this lack of demand we see a abnormally small jump in prices between two bedrooms and three bedrooms in Southie. By breaking markets down by factors such as bedrooms we can get a much better feel for who is buying where and how important extra space is to these buyers. This can be an invaluable tool when marketing your own home and making repair decisions before listing it.
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