What is price per square foot?
If you are looking for a home or have purchased a home you may be familiar with the term “price per square foot.” Many real estate professionals are focused on what a property is sold for on a per square foot basis. When someone mentions price per square foot, they are simply referring to the sale price divided by the gross living area. Price per square foot is calculated by dividing the sale price by the gross living area. For example, if you have a 1,500 Sq Ft home selling for $225,000, the price per square foot would be $150/Sq Ft. Gross living area as defined in THISprevious post, is the finished above grade living space. We do not include finished basement area or accessory dwelling units in the price per square foot calculation.
What price per square foot tells us
Price per square foot simply gives us an idea of what properties are selling for based on the amount of above grade living area they offer. Price per square foot gives us a quick overview of value. Real estate professionals may look at a quick overview of what all of the properties in an area have sold for on a price per square foot basis in order to determine a value range for the market they are in. For example; they may see a home that sold for $300/Sq Ft at the high end, and $200/Sq Ft on the low end, and compare those properties to the property they are considering. If the property they are looking at is being offered at $350/Sq Ft, there may be concern that the property is overpriced. Basing a property’s value on price per square foot is not an accurate valuation method as it does not tell the complete story. Lets look at why valuing property based on price per square foot is not a recommended practice.
Why value is not based on price per square foot
The price per square foot number can be a good indicator of value, as discussed above. The problem with basing an opinion of value solely on square footage is that there are no other variables considered in the value estimation. Many appraisers consider price per square foot as a good value indicator, but not the major determining factor in their final opinion of value. There are many aspects and characteristics that come to play when placing an opinion of value on a property. Some real estate professionals only look at what has sold in the area and then they take an average price per square foot to come of with a value or suggested list price. The problem with this method is that it does not account for any characteristics outside of living area and sale price. To give an example, If two houses of identical size are selling and one has a 3 car garage and one has a 2 car garage, the selling price would likely be higher for the property with the 3 car garage. If all other aspects of the homes are the same, the price per square foot would be different for each property due to the increased value the 3 car garage may bring in the market. Basing a value solely on price per square foot in this case. does not account for the difference in garage amenity. Most appraisers consider many different aspects of a property before giving their opinion of value. Appraisers consider amenities that influence the overall value of a home individually and make adjustments for those amenities.
How an appraisal can help
If you are considering selling your home, you should consult with an unbiased professional to determine a fair list price. If you haven’t already gathered from the earlier portion of this blog post, some real estate professionals will suggest a list price based solely on price per square foot. An agent may not have the time or ability to perform an in depth analysis of your home and its unique features. A real estate agent specializes in marketing and sales. Agent’s are not always the best at determining value of a property. In addition, a real estate agent benefits if they can convince you to list the property under fair market value and entice a quick sale. When you hire a certified appraiser to give their opinion of fair market value, you are consulting with a true market professional who does not stand to profit from the sale of your home. Appraisers are not paid on a percentage of the value or sale price of your home. The fee for an appraiser’s service is negotiated prior to engagement. Click the order button below and Appraisal Partners can have a certified professional perform a pre-listing appraisal for you prior to listing your home.