If you’ve been calculating your home’s value based on market “price per square foot” reports, you may be vastly overestimating or (worse) underestimating your home’s true value. Here’s why:
Price per square foot is a concept in real estate which is easy to understand and just as easy to misuse. The formula is pretty simple: To determine price per square foot, you take a price, such as sale price of a home, and divide it by the square footage of the property.
Price per square foot is useful in looking at broad market comparisons, such as comparing one entire metro area to another, or looking at an area’s average change over time. It is not, however, terribly accurate in figuring out the value of your home.
Why? Well, price per square foot fails to take into account the most important factors when pricing a home.
First and foremost, it makes assumptions about the home’s amenities. We all know the quality of materials used in home construction and the condition of the home’s appliances and other features can have a dramatic impact on the value of a home. A kitchen with Italian marble surfaces versus one with pressboard countertops will have completely different values. Price per square foot in a given neighborhood will blend these homes together and produce an average.
Second, price per square foot assumes locations are identical, but in almost any metro area there are up-and-coming neighborhoods as well as neighborhoods in decline. Price per square foot near an abandoned industrial zone will vary considerably from one near a well-established downtown district with a great walkability score.
Third, even the simple methodology of calculating price per square foot can be influenced by how the total number of square feet has been calculated. If one has a garage converted into a mother-in-law, and another home doesn’t, which square footage is valid? And what about home or lot size? Sometimes above or below-grade lots can influence the price per square foot as well.
Price per square foot is more useful in some situations where there is tremendous uniformity in the design, construction, and location, but as a tool for assessing your home’s market value, it’s flat out dangerous.
Want a real estimation of your home’s value in its current condition, with an assessment of features, lot size and location? I’d be happy to help. Get in touch today, and I’ll show you what goes into determining the optimal price for your home. Please call me at 910-352-0998
Your Weekly Real Estate Report is provided by Justin Donaton of Coastwalk Real Estate. Any data provided, unless otherwise noted, is courtesy of the Wilmington Association of REALTORS MLS and/or the National Association of REALTORS.
Justin does not just "list" properties, he sells them! To sell your home SOLD for the highest possible price, call Justin at 910-352-0998. Justin has been the TOP SELLING real estate agent on Pleasure Island since 2007 and has sales volume exceeding $100,000,000.00! His business is built on hard work and high-impact marketing. Coastwalk Real Estate is also a TOP SELLING real estate firm in Carolina & Kure Beach. Please visit: www.CoastwalkRealEstate.com for more info.