Truth About Price per Sq.ft. in Valuations
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…has nothing to do with size…
This article from realtor.com titled ‘Forget Price Per Square Foot: The More Accurate Ways to Determine Your Home’s Value’ explains why price per square foot is not a good gauge of value.
A home’s price per square foot is a common way to quantify its value… Many home shoppers even use it as a determinant for whether or not they’ll even consider touring a home.
But that doesn’t mean it’s the most accurate, end-all and be-all way to gauge a home’s value and compare it with other houses. Why? Because all homes are different.
Why price per square foot isn’t a good gauge of value
Homes come in different styles, are built with different materials, come with different amenities, and exist in different locations. Each of these factors has a profound effect on a home’s value and has nothing to do with size.
Price per square foot also doesn’t take renovations into account. A completely refurbished kitchen will add value to a home without changing the overall square footage of the property. Therefore, two homes may be the exact same size, but can look completely different inside.
While the writer concentrates on ‘size’, the actual determination of Price per square foot is determined by the Sale Price divided by the Gross Living Area only. It does not (directly) take into account any additional square foot living space in basements, or added amenities on the property, although that or those may be a component of the Price. nd when the Agents include ADU living space into the GLA, it skews the price per square foot.
Price per square foot really only works in conforming tightly located neighborhoods with similar homes, on similar size lots. As the writer notes, there are far too many variables in real property to make Price per square foot a reliable metric. Unfortunately, far too many Real Estate Agents believe it to be, and base list prices on it.