PRICE PER SQUARE FOOT - A HORRENDOUS STRATEGY
LINEBERRY PHOTOGRAPHY CO: This beautiful living room is located in Palmetto Place, a luxury AirBnB property on Bald Head Island, designed by Courtney Ross of Sawgrass Marketing.
Price per square-foot is a horrendous strategy for valuing homes.
And yet, it seems to be the first approach that homeowners always lean to when they want to self-assess their property. Almost entirely unreliable, I steer people away from this method and have found great success in itemizing a home’s features instead.
A few features that I feel buyers emphasize for value purposes:
Lot value: Your neighbor up the street's price-per-square-foot value is meaningless if you have a much smaller lot, less usable land, or obstructed views of anything of value.
Gross living area: Livable areas are valued differently than residual footage sprinkled sparingly throughout the home, such as wider hallways or an oversized bathroom.
Finishes and features: This one can live here without too much explanation. For someone valuing homes, we MUST see photography or physically walk the interior of the home. Using data-metrics does not supply enough infomation.
Age of home: Newer homes generally sell for more per square foot than older homes. I make adjustments for anything outside of a 2 year difference in a newer development….. such as a sizeable neighborhood with over 300 homes all built since 2012.
Bedroom count versus flexible living space: The bedrooms will largely value equally; however, a sunroom is valued differently from an office, and especially from a large bonus room that could double as a 4th bedroom if needed.
Mike Armentrout is an appraiser based in Ohio, and he recently elaborated in an article titled “The Reality of Price Per Square Foot”:
“The primary fault with $/SF is that it encompasses every feature of the property equally and not just gross living area. Only calculating the relationship between size and sales price ignores all the considerations a potential buyer may make. If we were comparing two properties that were identical with the exception of size, then it is rational that the larger of the two may sell for more and thus the $/SF could be an accurate indicator. On the other hand, if we had two identical homes in terms of size but one had a larger wooded lot and sold for more, the equation would not be as reliable. As properties have more dissimilar amenities and features, the less reliable it becomes a function of indicating value. This is simply because other factors are not directly related to the gross living area.”
Here's a better way to determine a property's value:
Pull a handful of comparables (from the last 6 months) in the same neighborhood with similar characteristics (e.g., size, condition, amenities, lot size, age).
Adjust the comparable properties up or down based on the condition of the subject property and very specific descriptors that might affect its value.
Take the average of the adjusted comparable results for a good idea of the market’s perceived value of the home.
I have a recent story about a home in Sneads Ferry that I used this method to valuate. I told the homeowner that in the current condition (needing major repairs), I’d recommend a listing range of 295,000 to 310,000, unless he was willing to make those repairs ahead of time. We’re talking large issues (water, sheetrock, decking, etc)…. which would have given him the demanded 340,000 he was hoping for. He denied me… he interviewed another agent who said “Yep, I’ll list it for 340,000.”
WELP - it was on the market for 6 weeks with poor feedback (of course), and upon my * FOLLOW UP *, I discovered that the home ultimately sold for 300,000.
Could have saved some heartache, I’m sure. Time, energy, and frustrating negotiations. This method is loads better than using price-per-square-foot.
P.S. If you're not sure how to adjust comps for different factors, or if you need help determining the ARV of a property, it's a good idea to consult with a qualified real estate professional.
Here for ya! As always.
