Prices per Square Foot, the Truth for Home Buyers

compare home valuesA real estate appraiser’s perspective:  Buying a house based on the price per square foot is like paying for a car based on its miles per gallon; and yet to this day I see buyers, sellers, mortgage and real estate professionals discussing and using square foot price as a method for comparing homes to try and determine value.

 

A 2,000 square foot home that sold for $400,000 did technically sell for$200/sf so the appeal is understandable because on the surface price per square foot takes a very complex problem and appears to deliver a simple solution but it is an illusion. Tempting as it is using $200/sf as the basis to determine the value of any other home is fatally flawed because it is what lies below the surface that counts.

 

Here is why price per square foot is misleading as an indicator of a home’s value. My real estate data comes from Boston and its suburbs but wherever you are there are certain universal truths about American real estate values.   How much a home is worth ultimately depends on the following list of key characteristics that influence market value of a home.

  1. Location
  2. Lot sizeHome Value Checklist
  3. View
  4. Style
  5. Age
  6. Condition
  7. Quality
  8. Size (square feet)
  9. Floor plan (#Room/#Bed/#Bath)
  10. Parking
  11. Other amenities
  12. Time – When the home sold

 

You can tweak or argue the completeness of the list but it is the differences in all of the various characteristics which influence the sales price and ultimately the price per square foot.  Ask yourself this; would someone pay more for a home on a quiet tree-lined cul-de-sac than they would pay for the same exact home along a very busy main street?  And since the sale included the lot upon which the house was built, how much of that $200/sf do you think was for the land?

 

Let us peel back a few layers of the real value problem. Here is a recent real life example of two similar homes that sold recently in Framingham, MA presented in matched pair format where you can see the same sized house sold for two very different prices per square foot, and it is not difficult to understand why.

Address 70 Hemenway Rd 76 Hemenway Rd
location Not a factor Not a factor
lot Size 0.56 acres 0.59 acres
view Not a factor Not a factor
style Slab Ranch Slab Ranch
age 56 years 56 years
condition significant updates 2009-2010 carpet/paint toilet oven cheap cabinets
quality upgraded K&B  quality inferior/original
square footage 1,440 1,454
Floor Plan 8Rm-3Bd-1.5Ba 7Rm-3Bd-1.5Ba (assessor says 1 bath)
Heat/AC FHW-propane/ CAC FHW-Oil/Wall AC
Parking Driveway Driveway
Other amenities Fireplace/Radiant bath/Patio Fireplace
contract date 11/22/2013 11/12/2013
closing date 12/5/2013 12/17/2013
Sale Price $348,000 $233,000
Price per sf $242 $160
2013 Assessment $282,200 $273,200

 

Why the huge difference in the price paid per square foot? These two homes have almost the exact same location, size and bed/ bath utility but there is a difference of $115,000 attributable to the superior condition and quality of the first house.  The other home needed of some repairs and the little bit of updating was of low quality.

 

I describe appraisers as trained professionals who pretend to buy houses for a living.  There is a skill set which comes from training and experience and there are practices and methodology that are brought to bear on solving the problem of; what is this hose worth?  in the end appraisers mirror the behavior of buyers in the market, and everyone; sellers, buyers, realtors and appraisers are all trying to solve the same problem. What is this house worth today?

How often do you buy or sell a home? Do not be penny wise and pound foolish.  If you are buying or selling you need a realtor to navigate through the negotiation and other complexities then hire a knowledgeable independent appraiser to develop their unbiased independent opinion of value.

 

Resource Box: Adam Wiener is a certified residential real estate appraiser in the Greater Boston area.  To see more about on expert methods, tips, and knowledge about residential real estate please visit http://www.aladdinappraisal.com  the sales information is publicly available www.zillow.com  or www.trulia.com . Framingham assessor’s database is found at http://www.framinghamma.gov/index.aspx?NID=658

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Adam Wiener

I provide attorneys and accountants with date of death, estate, tax and bankruptcy appraisals. I help realtors and homeowners set effective listing and offering prices and deal with appraisal issues. And...due to my extensive construction and appraisal background, my sweet spot is helping homeowners with growing families make a decision whether to add to their existing home or move to a new home.

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