When Does Price per Square Foot Matter?

    does price per square foot matter

     

    Price per square foot – when does it matter in real estate?

    I’m always amazed when I talk to my friends that are agents and brokers in other states. Many of them have never measured a house, because square footage is not a required field in their multiple listing service (MLS). As a matter of fact, in some states square footage doesn’t appear in the MLS listings at all.

    How did buyers and sellers get so caught up in square footage as a pricing measure?

    Probably because the math is so easy. Price ÷ square feet of property = price per square foot (PPSF). Even a 5th grader can do this math.

    But what’s the point?

    Appraisers don’t value residential real estate on a price per square foot basis. Any appraiser will tell you that they are looking for comparable sales, in comparable locations, and determining market value based on those sale prices. Do they adjust for differences in square footage? Absolutely, but not at the same rate as you’d think.

    If your neighbor’s house has 100 square feet less than your home, and sold for $200 per square foot, an appraiser is not going to add $20,000 to your home valuation based on that sale. The difference in appraised value will be minimal, making the price per square foot almost useless when determining a listing or offer price.

    Price per square foot doesn’t take into account the details of a home. Does it have upgraded finishes? A more desirable lot? Is it newer than the other homes in the neighborhood? Square footage has nothing to do with any of these.

    Is price per square foot ever useful?

    In some instances, it can be. Are you buying in a neighborhood of new tract homes that all have the same finishes? Or perhaps in a large condo development with plenty of similar units? Then an appraiser or your agent may take price per square foot into account.

    Otherwise, it’s a detail that too many people allow to derail their home purchase or sale when they get caught up in using PPSF to sway their own determination of value.

     

     

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