Real Estate Appraisal Forum

appraisersforum.com logo
The Premiere Online Community for Real Estate Appraisers!
 Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
 
 
Go Back   Appraisers Forum > Other Forums > Ask an Appraiser
Register Help Our Rules Calendar Archives Mark Forums Read


Closed Thread
 
Thread Tools
  #1  
Old 07-26-2004, 08:56 AM
Ivan Alfonso Ivan Alfonso is offline
 
Join Date: Jul 2004

Posts: 1
Default

Are there any articles written on the theory behind, why smaller homes sell more per square foot? Sometimes I have a real estate agent telling me that "this house is much smaller and it sold for $100.00 per square foot, why is the subject property, which is larger selling under this price per square foot?"
Sponsored Links

  #2  
Old 07-26-2004, 08:58 AM
Scott Kibler's Avatar
Scott Kibler Scott Kibler is offline
 
Join Date: Oct 2003
Location: Chicago
State: Illinois
Professional Status: Certified Residential Appraiser
Posts: 5,314
Default

Think about the contribution of land to the total market value.
__________________
Everybody grab your torches and pitchforks!
  #3  
Old 07-26-2004, 09:09 AM
Bobby Bucks's Avatar
Bobby Bucks Bobby Bucks is offline
 
Join Date: Jan 2002
Location: flyover country
State: North Dakota
Professional Status: Real Estate Agent or Broker
Posts: 5,488
Default

It's the reverse of economy of scale. Even though the improvements may be smaller with regard to living area, the cost for most necessary components remain fixed ie. the HVAC, plumbing fixtures, etc. This is your article. Print it and it will save you time and ink. :-)
__________________
Forensic witch hunter extraordinaire
  #4  
Old 07-26-2004, 09:10 AM
Caterina Platt's Avatar
Caterina Platt Caterina Platt is offline
 
Join Date: Jan 2002
Location: Central New Mexico
State: New Mexico
Professional Status: Certified Residential Appraiser
Posts: 4,773
Default

Let me see if I can re-create the explanation from an Appraisal Institute class of several years ago.

Let's consider a 3 Bedroom, 2 bath ranch. Both homes will have the same number of plumbing fixtures and upgrades. Your first home is a 1100 SF with a single living area. The expensive items in construction are often your plumbed areas and their fixtures and cabinets, ie. bathrooms and kitchens. Your distributing the cost of these out over a smaller dwelling as a whole.

Now, consider your 3 bedroom, 2 bath with 2 living areas (a den and a living room) and stretch the bedrooms out a bit. Take the total living area up to 1600 SF. What have you added to accomplish a larger home? Basically, you've added foundation, carpet, trusses, shingles and drywall. This less expensive addition of living area has lowered your cost per square foot.
  #5  
Old 07-26-2004, 09:18 AM
Joker's Avatar
Joker Joker is offline
 
Join Date: May 2002
Location: Hicksville, Appalachia
State: Ohio
Professional Status: Certified General Appraiser
Posts: 6,070
Default

Ditto the above comments. Economies of scale. Additonal square feet do not cost as much as the initial.
__________________
I don't need no stinkin' signature line.
  #6  
Old 07-26-2004, 10:43 AM
Dee Dee's Avatar
Dee Dee Dee Dee is offline
 
Join Date: Jan 2002
Location: Colorado
State: Colorado
Professional Status: Certified Residential Appraiser
Posts: 6,587
Default

Good points.

Add to that, generally speaking there is a larger pool of potential buyers who can afford smaller homes versus those who can afford larger ones, so the demand tends to drive the price per square foot a little higher.
__________________
The only difference between a rut and a grave is how deep your rut is.
  #7  
Old 07-26-2004, 10:59 AM
Tim Hicks (Texas)'s Avatar
Tim Hicks (Texas) Tim Hicks (Texas) is offline
 
Join Date: Jan 2002
Location: Crowley
State: Texas
Professional Status: Certified Residential Appraiser
Posts: 11,837
Default

If you are in a typical neighborhood with similar lots and lot values, the lot value is a constant value. Therefore, a smaller home say 1500 SF at $120,000 with a $30,000 lot sold for $150,000 or $100.00 a foot. However, the home next door has a 1,800 SF house at $144,000 with the same $30,000 lot sold for $174,000 or $96.67 per foot.


Price per square foot is a greatly exaggerated tool that Real Estate agents use. There are too many factors that go into the total price that can skew the price per foot. Pools, larger lots, workshops, etc. It is not wise to base decisions on a total price per foot.
__________________
Please don't log on here and ask for our blessings unless you are prepared to accept the truth.
  #8  
Old 07-26-2004, 11:04 AM
Carnivore's Avatar
Carnivore Carnivore is offline
 
Join Date: Jan 2002
Location: Queen City
State: North Carolina
Professional Status: Certified Residential Appraiser
Posts: 12,562
Default

Ivan

heres an example of what they are all talking about.

Imagine a two story house with an attached 2 stall garage on the end. Above this garage there is a double pitched roof system that is unfinished attic and accessed from the 2nd floor via a hallway.

This house is currently being offered for sale and the builder says he will finish the upstairs for X bucks. You and your bride look at the additional cost and its seems like a deal because the builder is chargeing the 100 Bucks per sft for the current house and will only charge you 50 bucks extra per sft for the new room.

See picture to understand Caterinas post!


As you can see there is litte extra to do for an extra 12 x 22 foot room.

p.s. Builders always over charge for this extra sft!
  #9  
Old 07-26-2004, 11:11 AM
Ryan Nyberg's Avatar
Ryan Nyberg Ryan Nyberg is offline
 
Join Date: Jan 2002
Location: Washington
State: Washington
Professional Status: Gvmt Agency, FNMA, HUD, VA etc.
Posts: 4,162
Default

Cat hit it right with the easiest Layman explanation.
  #10  
Old 07-26-2004, 03:46 PM
KD247's Avatar
KD247 KD247 is offline
 
Join Date: Jan 2002
Location: Left Coast
State: California
Professional Status: Certified Residential Appraiser
Posts: 1,757
Default

Hi Ivan,

You're not likely to find any serious articles that deal with the $/sf factor, because it's not generally regarded as a meaningful number. Intuitively, "Price per Square Foot" sounds like a reasonable way to compare some value related aspect of two properties, but one can't usually draw valid conclusions from this number.

The pointlessness of Price per Square Foot is most apparent in places where the value of the site makes up most of the home's total cost. For example, in some metropolitan areas, we could compare an $800,000 800sf home at $1,000/sf with a 3,000sf home on a similar site that sells for $1,200,000 ($400/sf). The $600/sf difference might get your attention, but it would be ridiculous to infer that the 3,000 sf home is the better deal.

Now, as we head toward the desert wastelands, the value of vacant sites drops dramatically and we begin to see places where lots can be purchased for the price of a used car. As site values get closer to zero, Price per Square Foot begins to give the illusion that it is a reasonable way to compare properties. But, even if the land has absolutely no value, there are still other variables involved, the most obvious being differences in quality (construction costs per square foot).

Consider two homes built on "free" sites. Assume that both homes cost exactly the same, per square foot, to build. A $240,000 2,400sf home and a $300,000 3,000 sf home both have a Price per Square Foot of $100/sf. Now suppose that the larger home sold for $330,000 with a Price per Square Foot of $110. We can still only guess at what caused for the $10 per Square Foot variance. Did the buyers of the smaller home really get a better deal, or is it that buyers in this area are willing to pay a premium for a larger home? Is there some other variable that we're unaware of (a view, an odor, etc.)? Or, is the difference simply due to normal inconsistencies in the market?

Now take the same example, but with the difference accounted for by differences in construction costs per square foot. The Price per Square Foot would simply be a direct reflection of construction costs.

In my experience I've only seen Price per Square Foot used to support a predetermined conclusion or a salesperson's agenda. It sounds like a valid comparison, so when someone wants to illustrate that a house is a good value it's a convenient number to produce. However, that same person will likely ignore the Price per Square Foot if it doesn't support their case.

Your question makes a few assumptions that should probably be checked: that Price per Square Foot is a valid measure, that one can identify the primary variables that contribute to Price per Square Foot differences, and that Price per Square Foot differences are causally related and are not just coincidences.

If an agent told me that the larger house is selling for less per square foot than a smaller house, my first question would be, "Why should I care?"
Sponsored Links

Closed Thread


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump




Copyright © 2000-, AppraisersForum.com, All Rights Reserved
     Terms of Use  Privacy Policy
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com

Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
Partner Sites:
AppraiserUSA.com - National Appraiser Directory AllDomainsUSA.com - Domain Name Registration
DeadbeatListings.com - Deadbeat ListingsAppraiserSites.com - Web Hosting for the Professional Real Estate Appraiser
Find FHA Appraisers - FHA Appraiser Search Commercial Appraisers - Commercial Appraiser Search
Relocation Appraisal - Find Relocation Appraisers Domain Reseller - Business Opportunity
Home Security Buzz - Home Security Info Radon Testing - Radon Gas Info
My Medicare Forum - Medicare Info Stop Smoking Help - Help Quitting Smoking
CordlessPhoneStore.com - Great Cordless Phones AndroidTabletCity.com - Android Tablet Computers

Follow AppraisersForum.com:          Find us on Facebook            Follow us on Twitter


All times are GMT -5. The time now is 01:23 AM.

SiteMap: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93