Pricing Your Home – Why Not Price Per Sq Ft?

Price per square foot is a very simple way to calculate a home’s value, too simple as a matter of fact. I frequently find that home sellers and buyers are focused on the price per square foot of homes but price per square foot is an inaccurate and poor indicator of a home’s value.

In its simplest form, it suggests that a 3000-square-foot home is worth double that of a 1500-square-foot home. Let’s consider the lot. If a 3000-square-foot home and a 1500-square-foot home are on similar lots, the price per square foot technique would suggest that the lot is worth twice as much for the 3000-square-foot home than the 1500-square-foot home which is simply not the case. Otherwise, a vacant lot with a zero square feet of home would be free. To price the home properly, you would need to remove the lot and its value from the equation.

The cost to build a 3000-square-foot home is also not double the cost to build a 1500-square-foot home. Both homes have one furnace, one kitchen, one two-car garage, one sewer line, they had one building permit. So the additional square footage typically does not include expensive systems, but just bedrooms and the like.

There’s also a difference when you consider a two-story home versus one story. A one-story home is more expensive to build, partly because the roof and foundation need to be much larger. The one-story home will also have more usable space than the two story because it doesn’t require a staircase to use up valuable square footage. It also has higher demand because one level homes are more desirable as people age.

Speaking of multi-story, we typically calculate basement square footage much differently than above ground. A finished daylight basement might be valued around 50 to 70%, a fully underground basement, less than 50%, and if it’s unfinished, much less.

So how should you calculate a home’s value? Well, that’s a good question and it can be a little bit complicated. As a real estate professional, I use comparable sales from the same neighborhood or comparable neighborhoods nearby. I find homes that are of similar size, age, and quality, and then I perform a detailed analysis, adjusting each home in several categories to take the many variables into account. I also look at the home through “buyer’s eyes” using my experience to see the very desirable or undesirable aspects, and I also consider current market conditions, to make some final adjustments. If you’d like to know more about the value of your home, reach out to me any time. It’s what I do.