Understanding Why Comps Are So Cheap On A Sf Basis

[Louis Hemmi]

One thing that's driving me crazy is trying to understand why some properties that look comparable in terms of proximity to the subject and GLA are so cheap, as though the GLA is not recognized by the market.

I've got 4200 SF houses in one close by (.5 mi) going for what one would expect for 3500 SF. I read the listings, noting granite, wood floors, laminate, crown moldings, etc and they look comparable.

I'm going to personally inspect today, and hope that my visit will give me a clue. Maybe there are some adverse factors of which I am not aware and cannot deduce from my desk.

Comments are appreciated

 

[J Grant]

As an appraiser, I don't value properties at price per SF the way RE agents do. Differences in SF from one house to another is considered contributory value, and sometimes that value is high, other times low, other times the market does not recognize it.

It also could be the case that construction quality of upgrades vary between the houses which can skew prices per sf...a buyer may pay a lot more for an upgraded/remodeled 3500 sf house than they would an avg condition 3800 sf house.
After you research the comps and see interior MLS photos and attributes of each compared to subject it will become clearer and some of the houses you now see as potential comps may be eliminated. Unless a market is totally random ( which it seldom is), buyers pay prices for a reason. So how your subject compares in location, quality and upgrades to the sales will usually narrow down the comps to those truly more similar to subject which makes adjusting easier.

One thing that might be throwing prices off if you see similar upgrades is if some sales are flip sales , and then you have to see if buyers over paid for them or not

 

[The Warrior Monk]

A square foot analysis can be useful for residential properties, but only if all other factors are accounted for. For example, if the lots values of the properties are very different, that will dramatically skew the numbers. There are plenty of other factors, such as one property being improved to its highest and best use while another isn't, contributory value of amenities on the property (in-ground pools, poolhouses, tennis courts, etc.).

 

[Joe Flacco]

Bigger the house lower total price per SF all else being equal. Smaller the house higher total price per SF, all else being equal. If you subtract out the site value and compared price per SF of improvement then it will probably be more similar.

 

[Joe Flacco]

If you have a 100 SF shack on a $100k lot then the price per SF would be $1,000 per SF. This is basically taking site value and dividing it by the size of the improvement.

 

[Gobears81]

That is evidence of the market telling you that the incremental square footage is not as desirable. In general, I agree with Joe Flacco, although there is always the possibility that a small house could be a deficiency in a market that anticipates 3,000 SF houses, which might not result in a smaller house having a higher price per SF. Likewise, if the market anticipates a 3,000 SF house, people may not even want a 4,200 SF house. That's a lot of space to heat, clean, and maintain. If I were personally looking for a house and saw that it was 4,200 SF, even if I liked the other specs, I'll probably cross that off of the list. Thus, the market/ demand for a house of that size could be considerably less than a house that is otherwise comparable, save for the size. That could be evidence of functional obsolescence due to superadequacy. After some point, you might see no value given for the additional SF, or even negative incremental value, due to the aforementioned issues.

 

[J Grant]

what is the sf of your subject? What is sf range of the comps?

Try to stay to as close a sf size to subject as possible in comp searches ...if you still find large price differences with similar sf sales in same area it's a tedious process to sort it out. It really is market specific, and can be frustrating.

 

[bnmappraisal]

Maybe there are some adverse factors of which I am not aware and cannot deduce from my desk.

Have you reached out to the listing agent? Maybe they can shed some light on something you're not seeing in the MLS/pics nor from an exterior inspection of the comp. That'd be my next step

 

[Elliott]

I don't pay attention to SF prices until something doesn't make sense. Its usually because of land value, quality, or condition why one property will be significantly different. Realtors will sometimes try to beat you over the head with SF prices, but I usually just tell them its an un-adjusted average.

 

[miktay]

Don't forget the fact that not all real estate salespeople are created equal.