Price Per Square Foot Fallacy.

I frequently run into other agents and consumers that measure residential housing value by using the price per square foot metric. While using this data can have some value, I do not find it particularly useful. Property condition and layout are two factors that can drastically change the value of square footage, which can make the price per square foot metric less helpful or even useless.

Property Condition.

Simply pointing to price per square foot to determine a property’s value ignores the physical condition of the property. Renovated square footage is significantly more valuable than property that has lots of wear and tear. Also, high end appliances or fixtures can greatly increase the value of a property. If the price per square foot of a certain property is really high compared to others in the area, it might be because the space is renovated with high end fixtures. And if the price per square foot of a property seems low, it might be due to a very poor property condition.

Layout.

Not all square footage is created equal. If the square footage is not utilized effectively or is unusable, it will decrease the value of the property but will not necessarily show up as a decrease in the price per square foot metric. For example, if there is a portion of the property that technically counts towards the square footage of the property but has low ceilings, very small rooms, or another fault that renders the spaces unusable (or barely usable), then it will decrease the value of the property. Or even in renovated properties, if there is a dead space that does not fit with the flow of the rooms, it will decrease the value of the property. I have even been in staged homes where I could not figure out a use for a certain portion of the property (and apparently neither could the professional stager).
The price per square foot metric to measure the value of a property has some value for residential real estate, but not much. As mentioned in other areas of this website, residential real property is an asset, but it is not like a stock or bond. Each piece of real property is unique, and requires a thoughtful and educated analysis. So if someone shows you a price per square footage analysis for a residential property, take it with a grain of salt. File it away as one piece of the picture, but do not rely on it exclusively. Do your due diligence and analyze more than just this one metric. Better yet, have us do it for you. And when you are ready……Buy Smart. Live Well.