FAR – The Significance of Floor Area Ratio

Floor Area Ratio, often referred to simply as FAR, is an essential concept for anyone who is concerned with the way zoning can affect a neighborhood. Pronounced “F-A-R,” it can be challenging, but it’s important to understand.

The purpose of FAR

The point of FAR is to limit the size of a building in relation to the size of the lot on which it’s located. To figure out FAR, you take the total square feet of all the floors on a building and divide that by the total square feet of the lot. Note that the numbers used should be the usable floor area and the total lot area – not just the floor area or lot area in use.

The FAR accounts for 100% of the floor area of a building – not just its footprint. Buildings can have different numbers of stories but still have identical FAR values. For example, a one-story, 1,000-square-foot building on a 4,000-square-foot lot would have an FAR of .25. A two-story building on the same size lot that has 500-square-foot floors would have an FAR of .25 as well.

FAR has big implications for real estate developers

Properties with low FAR limits are less attractive to developers. The real estate industry in general sees higher FARs as opportunities to open up space and complete projects more efficiently. Higher FARs allow for larger buildings, increasing sales and leases, and lower per-project expenditures. It also makes it easier for developers to meet higher demand for new properties.

Local governments sometimes set maximum FAR for a specific parcel of land

How often a local government will set a maximum FAR for individual parcels of lands depends on the area in which the property is located. For example, in a city like New York an FAR is set for each parcel. In rural parts of Ohio, it is likely never set at all.

What happens if a building exceeds the maximum allowed FAR? It mostly depends on when the property was built. If the property was built before FAR limits were imposed, the building is grandfathered in and the owner doesn’t have to take any measures to conform to current standards, but they cannot develop the property further.

However, if a property’s FAR exceeds the maximum, and was built after those limits were set, steps must be taken. An owner may seek a variance for the property, and if that is not an option, they may be forced to remove parts of the structure.

FAR can be just as important as height limits

It is common in areas like New York City for buyers to worry about height limits. They may want to see more high-rises, or they may want to maintain the integrity of the neighborhood. FAR limits can be just as important. A retail center, for example, that exceeds the lot’s maximum FAR may not provide enough parking space for customers.

Although FAR limits are generally less problematic for developers in residential areas, municipal codes still apply. Furthermore, a homeowner’s association bylaws might also set FAR limits, possibly even more restrictive ones than the local building codes, in an effort to preserve the community’s original charm.

The complex effect of FAR on land value

FAR can both raise and lower land values. For example, one property may be more valuable with an increased FAR because it allows for a larger building with more units, larger units or both. However, this can reduce the value of the land next to the property because it may obstruct its view.

A property’s FAR can be a deciding factor for investors. If the building’s FAR is below the maximum, it means there is opportunity to upgrade and expand an existing property or build additional structures on the parcel.

Eliza Theiss

Eliza Theiss

Eliza Theiss is a senior writer reporting real estate trends in the US. Her work has been cited by CBS News, Curbed, The Los Angeles Times, and Forbes among others. With an academic background in journalism, Eliza has been covering real estate since 2012. Before joining PropertyShark, Eliza was an associate editor at Multi-Housing News and Commercial Property Executive. Eliza writes for both PropertyShark and CommercialEdge. Reach her at [email protected]