The value of a floor: valuing floor level in high-rise condominiums in San Diego

Purpose - This paper aims to analyze the effect of floor level on condominium prices in San Diego, California. The authors determine whether "higher-floor premiums" exist in the condominium market for a large California city. Further, they investigate how the floor premium varies throughout a building, particularly whether it is quadratic and whether there is a "penthouse premium" for top-floor units.Design methodology approach - The paper utilizes a data set of 2,395 condominium sales occurring in San Diego between 2006 and the second quarter of 2011. Using hedonic pricing analysis, the authors model the housing price as a function of condominium, building and neighborhood characteristics.Findings - The results suggest that there is a higher-floor premium for condominiums in San Diego. Specifically, an increase in the floor level is associated with about a 2.2 percent increase in sale price. The higher-floor premium appears to be quadratic in price, suggesting that price increases at a decreasing rate above the mean floor level. The authors also find evidence for a penthouse premium, though this effect disappears once "floor" is controlled for in the model.Originality value - There has been little direct research on the floor effect in condominium prices. The studies that have used floor level as an explanatory variable have been predominately in Southeast Asia. The results suggest that the floor effect is more complex than previously modeled.