Friday, January 4, 2008

The Issue With Price per Square Foot

One DREB reader posted this question to me and I’m happy to respond. “Why do you dislike $ per square foot as a way to value a home?”

First, I don’t dislike $/sf when valuing homes. I think it’s a good tool to make sure you’re in line with the market. If the average is $150/sf and you’re priced at $200/sf there better be a heck of a reason for it. I don’t like paying too much attention to average $/sf because one neighborhood can literally range from $190/sf to $490/sf. If most of the homes sell for $250/sf and you get 3 anomalies at over $450/sf that can throw off the average. So the seller then looks at the “average” and simply multiplies their square footage by that amount. Median values help defend against those anomalies which is why I prefer using median values.

Bottom line, don’t pay too much attention to average $/sf but do use it to make sure you’re in line with your particular market. A real estate agent knowledgeable in your market will know how to price homes based on lot sizes, finishes, pool, outdoor living areas and all of the other factors that can influence the value of a home.

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