Price Per Square Foot?

[Michigan CG]

That is so true. I recently did an appraisal on a 2 story home which had a little over 2,600 sf of GLA. Most homes in the subdivision were between 1,800 - 2,000 sf. They were selling for about $113/ sf. That is how the agent came up with a listing price. I found sales of homes similar to the subject which sold for $95/sf. The only answer I could come up with was that the more GLA were selling for less/sf.

A pound of elephant sells for less than a pound of mice.

 

[jackimoya]

Buyers probably do look at $/sf (sale price divided by size of home). That is all the components wrapped up into those two factors. And, they look at that $/sf as an element of comparison, not as a unit of value (as a rule.... most home buyers/sellers I encounter think in terms of total price first, and then may test their offer against a $/sf metric to see where it fits).

We effectively do the same thing except we breakdown the components. And our unit of value (we adjust sale price) is the same that the typical buyer/sellers think of (total price).

I've yet to encounter a buyer who says, "I'll offer you $25/sf less than what you are asking."
I've seen plenty of offers presented at $50,000 less than what was asked; and the counters that come back are based on "price" (a counter at $25k higher) and not "$/SF" (a counter at $10/sf higher).

Edit to add:

When you say , "a lot" means "many" and not "a parcel", right?

Yes... many

 

[jackimoya]

I sold real estate for 5 years and never had anyone do that. Most buyers are not that analytical. Maybe in very homogenous neighborhoods they would think that way. But honestly in my market price per square foot is all over the place.

It seems to be very common here in Southern California.

 

[jackimoya]

And I say "Really?? you have buyers that come to you and say "we want to buy a new house but we just can't go over $120 per SF."

Someone on the forum years ago said it would be like buying a new car based on $ per pound...

No, but many buyer's use price per square foot when submitting/negotiating offers on properties.

 

[DonRico]

The Realtors in this area use Price per sf all the time. They cling to it like a Bible Verse. It has an aura of analysis to it......there's some math involved (which always indicates a thorough analysis) and it also has a thin veil of Insider Information (as if this round number were magically revealed to the Realtor at a Seance or something).

The funniest thing is that they use this "analysis" to cover entire Towns -- Mount Pleasant, the tony suburb north of Charleston, always gets $300/sf without regard to the actual location. The rural areas farther out are always $100, no more and no less. A Realtor once asked me "What's wrong with Price per sq ft ??" I asked him about the Subdivision on a Golf Course. The same model Home with the same options & upgrades is built on the same street, one Lot has an unobstructed view of the 3rd Green, and the other Lot is situated on a busy intersection. How do you account for the difference in Sale Price ??

And here's the classic example of it's mis-use -- Not all Realtors know how to accurately measure the Living Area. I've seen them include Basements, Garages, and FROG's with low ceilings. Or just estimate a round number. Their Living Areas might be off by 10% or more. On a 2400 sf home, using their $150 formula......they just made a $36,000 mistake !!

Price per square foot may be a metric to be used as a last check. If somthing is out of whack there, you can usually find a reason for it.

 

[Terrel L. Shields]

the price per foot is for the entire property

Not all Realtors know how to accurately measure the Living Area

I appraised a house that was 2200 SF 1 story with 2200 finished walk out basement. The basement stank. No visible mold but it had an odor and walked out on the end only. I appraised it as a 2200 SF dwelling with finished basement. Est. $280,000. Realtor told them I was full of beans and it would bring $100/sf, of course, adding the basement and upper level to 4400 SF... $440,000. 2½ years later it sold for $265,000...as by that time (2012) prices fell some more. Only a new agent convinced them to lower the price to the appraisal and the property sold.

 

[leasedfee]

Unit price starts out high for small houses, levels out for the average, goes back up for the large homes.

A small denominator makes the small houses sell high per sf. The higher quality materials and willingness/ability to spend money on maintenance make the larger homes more valuable per sf.

It is a curiosity that buyers and sellers still manage to come to a market value when their heuristic is just, "I like this house better than the previous house. It is better deal than the nicer but more expensive house we saw this morning." Price Per House is the unit of comparison. This, yet, encompasses the hundreds of fuzzy attributes.

 

[TRESinc]

It seems to be very common here in Southern California.

No, but many buyer's use price per square foot when submitting/negotiating offers on properties.

of course they do. it's the easiest thing to calculate when it comes to buying a home, so people and agents flock to it to feel like they know what they are doing in the transaction. i liken it to the people who go car shopping based on monthly payments.

 

[DWiley]

Local real estate companies are always looking for guest speakers at their sales meetings. I developed a presentation that I used to present that explained, using local examples, why $/SF was only meaningful in very limited cases. It was fun to do because it typically started with a lot of skepticism and ended with a lot of "you are right about that"

 

[Deleted member 128537]

1000sf home sold for 700,000 and the lot is worth 650,000. Price per square foot: $700

1000sf home sold for 100,000 on a lot that's worth 20,000. Price per square foot: $80

This is what I will find in my area. Most likely the 1000sf house on a lot worth 650,000 is going to get scraped.

Another faux pax. 1000sf house compared to 1400sf house. It costs 100sf to build therefore 1000sf house is worth 100,000 and 1400sf house is worth 140,000. I ran across this a lot as well. Most realtors don't get that the kitchen, bathrooms, and windows are the major driver of costs. And therefore the 1000sf house will cost more per square foot than the 1400sf house.