Price per square foot is a concept in real estate which is easy to understand and just as easy to misuse. The formula is pretty simple: To determine price per square foot, you take a price, such as sale price of a home, and divide it by the square footage of the property.
Price per square foot is useful in looking at broad market comparisons, such as comparing one entire metro area to another, or looking at an area’s average change over time. It is not, however, terribly accurate in figuring out the value of your home.
Why? Well, price per square foot fails to take into account the most important factors when pricing a home.
First and foremost, it makes assumptions about the home’s amenities. We all know the quality of materials used in home construction and the condition of the home’s appliances and other features can have a dramatic impact on the value of a home. A kitchen with Italian marble surfaces versus one with pressboard countertops will have completely different values. Price per square foot in a given neighborhood will blend these homes together and produce an average.
Second, price per square foot assumes locations are identical, but in almost any metro area there are up-and-coming neighborhoods as well as neighborhoods in decline. Price per square foot near an abandoned industrial zone will vary considerably from one near a well-established downtown district with a great walkability score.
Third, even the simple methodology of calculating price per square foot can be influenced by how the total number of square feet has been calculated. If one has a garage converted into a mother-in-law, and another home doesn’t, which square footage is valid? And what about home or lot size? Sometimes above or below-grade lots can influence the price per square foot as well.
Price per square foot is more useful in commercial situations where there is tremendous uniformity in the design, construction, and location, but as a tool for assessing your home’s market value, it’s flat out dangerous.
Want a real estimation of your home’s value in its current condition and location? I’d be happy to help. Get in touch today, and I’ll show you what goes into determining the optimal price for your home.
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"Amy was absolutely fantastic! Our condo was on the market for over a year and had a total of 0 showings in that time with our previous agent. We switched over to Amy and what a difference! We had showings within the first week of getting it back on the market under Amy, and it sold in just a couple of months! Amy was professional and very communicative throughout the whole process and she was always available if we had any questions or concerns. She honestly made us feel like we were her only clients even though our listing wasn't exactly in the high dollar range (totally different experience with our previous agent - he made us feel like we were barely worth his time). You can't go wrong with Amy, we can't recommend her enough!