Is Price Per Square Foot the Best Way to Value a Home?

Price per square foot can be helpful in learning about the general value of a property in a particular area,  however, you should never use price per square foot calculations when valuing a home.

Estimating the value of a home is far more complicated than using average dollars per square foot. Using this method as your primary method of computing price can cause you to make a major error in pricing that can add to thousands of dollars. 

An error in measuring your homes square footage or the measurement of the comparison homes can lead to a significant change in price per square foot. How can you be certain that all of the square footage’s of all of the comparison homes are correct, when tax records are not correct ? 

Comparing Apples to Oranges

When you study the different types of homes that are available from economy to Luxury, it is easier to understand why the price per square foot is not a good tool to calculate the value. The cost of a single room in the luxury home may match that of an entire economy home.

The best way to explain why this method does not work is by showing you.   Let’s imagine that you are comparing two you have two homes that are 2800 square feet.

Home “A” has the following amenities:

  • Vinyl Exterior
  • A single tab roof  with Asphalt shingles and builders grade windows.
  • Carpets throughout the first floor and ceramic in the bathrooms.
  • The kitchen and baths have “builders standard” cabinetry. And Formica counter tops.
  • Hollow core doors throughout.

Home “B” has the following amenities:

  • Brick and Cedar exterior 
  • An architectural roof and Anderson windows.
  • Hardwood floors throughout and ceramic in the baths.
  • A custom kitchen with Granite counter tops.
  • Crown moldings throughout the first floor and wide base molding on the first and second floor.
  • Solid doors throughout.
  • Security system.
  • Deck leading to patio.

Now keep in mind these homes are the same size. It takes no rocket scientist to know that home “B” should sell for significantly more than home “A.” Using the price per square foot method with home “A” selling at $400,000 would give you a price per square foot of $142.86. But house “B” is no way going to be selling for $142.86 per square foot. This, however, is exactly how some sellers and buyers like to calculate a home’s value. By our example you can see that clearly this is not a good method at all. There are just too many variables with a home’s characteristics to make generalizations.

Did you also know that the actual size of a home will have an impact of what it sells at per square foot?

Smaller square-foot homes = higher per-square-foot costs. Larger square-foot homes = lower per-square-foot prices. AND…it doesn’t take into account things like upgrades (remodeled kitchens & baths, new flooring, new roof, new furnace, etc). And it doesn’t take into account LOT SIZE. Price based on Square feet also does not consider the location. A home selling on the main road will sell for something different than the same home on a country road. Or even when it comes to desirable neighborhoods. The neighborhood 1/2 mile down the street with the same sq ft homes will sell for a higher price if the neighborhood is more desirable.

Other bad ways to try and price your home.

 Zillow estimates – A Zillow estimate or Zillow Zestimate.

Assessed value – an assessed value is another awful means of determining a value. Fundamentally there is no relationship between assessed and market value.

Refinance Appraisal – a refinance appraisal is to either get a lower interest rate on a loan or take equity out of the property. Its based on different criteria and the lender wants to make money as well.

There is only 2 ways to be sure you are properly priced correctly  and that is to get help from a Realtor who will run a CMA (comparable market analysis) or by hiring an appraiser who will give you resale value. 

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