Floor Area Ratio - FAR

What is the 'Floor Area Ratio - FAR'

The floor area ratio (FAR) is the relationship between the total amount of usable floor area that a building has, or has been permitted for the building, and the total area of the lot on which the building stands. This ratio is determined by dividing the total, or gross, floor area of the building by the gross area of the lot.

A higher ratio is more likely to indicate a dense or urban construction. Local governments use FAR for zoning codes.

BREAKING DOWN 'Floor Area Ratio - FAR'

The FAR accounts for the entire floor area of a building, not simply the building's footprint. Buildings with varying numbers of stories may have the same FAR value. For example, the FAR of a 1,000-square-foot building with one story situated on a 4,000-square-foot lot would be 0.25. A two-story building on the same lot, where each floor was 500 square feet, would have the same FAR value.

Importance and Variations

Every city has a limited capacity or limited space that can be utilized safely. Any use beyond this point puts undue stress on the city. This is sometimes known as the safe load factor. Essentially, the FAR is that safe load factor. FAR is likely to vary because population dynamics, growth patterns and construction activities vary and because the nature of the land or space where a building is placed varies. Industrial, residential, commercial agricultural and non-agricultural spaces have differing safe load factors, so they typically have differing FARs. In the end, governments put regulations and restrictions that determine FAR into effect.

Implications for Developers

FAR is a key determining factor for development in any country. A low FAR is a general deterrent to construction. Many industries, largely the real estate industry, seek hikes in FAR to open up space and land resources to developers. An increased FAR allows a developer to complete more building projects, which inevitably leads to greater sales, decreased expenditures per project and greater supply to meet demand.

Impact on Land Value

The impact that FAR has over land value cuts both ways. In some instances, an increased FAR may make a property more valuable if, for example, an apartment complex can be built that allows for more spacious rentals or more tenants. However, a developer who can build a larger apartment complex on one piece of land may decrease the value of an adjoining property with a high sale value bolstered by a view that is now obstructed.

RELATED TERMS
  1. Building Permits

    A type of authorization that must be granted by a government ...
  2. COPE Insurance

    A set of risks that property insurance underwriters review when ...
  3. Trading Floor

    The floor where trading activities are conducted. Trading floors ...
  4. Add-On Factor

    The number of usable square feet divided by the number of rentable ...
  5. Building Ordinance Coverage

    Insurance that covers the increased cost of repairing a damaged ...
  6. Land Value

    The value of a piece of property, including both the value of ...
Related Articles
  1. Personal Finance

    Uncover The Next Real Estate Hot Spot

    Real estate land speculation is a way to get in on a hot investment before a boom hits.
  2. Managing Wealth

    How to Keep a Land Investment From Going Bust

    Investing in land can yield big returns. But investors should consider their goals, as well as the following details, to make the deal a success.
  3. Personal Finance

    Top 4 Things That Determine A Home's Value

    Your house depreciates over time, while the land beneath it is likely to do the opposite.
  4. Retirement

    The Top 5 States Where Retirees Can Buy Cheap Land

    Buying vacant land for future gain is high-risk. Look for low prices in undeveloped areas likely to see a building boom in the near future. Here are five.
  5. Personal Finance

    What You Should Know About Real Estate Valuation

    Anyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.
  6. Personal Finance

    Top 10 Fastest Growing Industries in the United States

    Six of the ten fastest growing industries are directly related to new residential construction.
  7. Investing

    Understanding Real Estate

    Real estate is an encompassing term that refers to land, the buildings on that land, and its natural resources, such as crops and minerals.
  8. Managing Wealth

    Getting A Mortgage When Building Your Own Home

    It's much harder to get a loan when you're building a home, not moving into one. Here's where to look and what to expect.
  9. Personal Finance

    Why Building a House Is So Expensive Now

    Building a house can be very costly, so it’s best to understand all the factors that go into the equation before proceeding. Here’s what you need to know.
  10. Managing Wealth

    Find Fortune In Commercial Real Estate

    Investing in big buildings means big money - and bigger risks.
RELATED FAQS
  1. What are some of the challenges in real estate development?

    Learn what real estate development is, what developers do, and how real estate development is hindered by both risks and ... Read Answer >>
  2. What's the difference between housing starts and building permits?

    Both housing starts and building permits are economic indicators used to assess the health of the housing market, but their ... Read Answer >>
  3. What are the differences between the installment method and percentage of completion ...

    Learn how businesses recognize revenues and report them under the installment method and percentage-of-completion method, ... Read Answer >>
  4. Why are traders on the floor of the exchange?

    Before the advent of electronic trading platforms, the floor of the stock exchange was the location for market transactions ... Read Answer >>
  5. What is the historical capitalization rate for real estate in New York City?

    Find out about historical trends in Manhattan real estate capitalization rates and learn how these rates are used by people ... Read Answer >>
  6. How does industrialization lead to urbanization?

    Discover the connection between industrialization and urbanization and learn how economic growth increases the demand for ... Read Answer >>
Trading Center