Is Price Per Square Foot Important

Is Price Per Square Foot Important

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Is price per square foot important? This is a question that lots of buyers and sellers want to know. In real estate, as with many things in life, the easiest solutions to a problem are not always the best solutions. Take calculating the value of a home for sale. Realtor’s, sellers and buyers all want concepts that they can use to convey the value of a home quickly and easily. One of the most popular concepts used in real estate is the price per square foot. FIND OUT WHAT YOU HOME IS TRULY WORTH Click this Link >>>>>>> FREE NO OBLIGATION IN DEPTH HOME VALUATION


Take the price of a home, divide it by the square footage of the property, and you have the price per square foot. Easy right? Yes – and people that use this means of valuation get the price wrong nearly every time!


Although the price per square foot can be useful in learning about the general value of real estate in a particular area, it is poor indicator of a home’s true value. There are so many components of a home that must be considered. This by the way is part of what keeps professional Realtor’s working. Determining the actual value of a home is much more complicated than a simple formula using only two variables.


Some real estate agents however, who are not that skilled in pricing a home will use this simple formula in trying to estimate home value. This is a very big mistake and one that causes so many Realtor’s to price homes WRONG! Price per square foot is one of the poorest means of valuing a home! What real estate agents and consumers should understand is the most important factors in pricing a home for sale.


Understanding Basic Home Types


To clarify why price per square foot is so inadequate a measurement in most instances, it can be useful to understand the different basic categories of homes. They are:


Economy


An economy home is built to appeal to lower income buyers and people who want to spend as little as possible on a house. Builders are careful to use materials that will keep costs down, so every part of the home will be made using materials that – while meeting code requirements – are not of the greatest quality or desirability.


Everything from the roof to the plumbing fixtures to the flooring will be low-end. The home is certainly functional, but compromises had to be made to build it to a certain low price point. These kind of homes are made in the most cost efficient manner.


Standard


Most homes are of standard build quality. Everything in the home is built of more durable materials than the economy home. The different components of the home, such as the cabinets, may be mass-produced, but they are produced using higher quality materials that will last longer and hold up better to wear and tear. Standard homes can contain components from both economy homes and possibly some elements of custom homes.


Keep in mind every builder constructs homes differently. Some build in a specific manner where the quality of the materials used is not visible to the laymen who is not in the construction industry.


While most buyers can tell the difference between a Marvin window vs a builders grade window, most would not be able to tell the difference in quality from one heating system to the next. Home “A” might have a heating system that costs $10,000 while house “B” has one that is only $6000.00.


Custom


A custom home kicks it up a notch, adding elements that are not found in lower categories. The cabinets in this home may be custom made by hand. The flooring may be hardwood, while the counters may be granite. In this kind of home you may have higher end appliances, better windows and bathroom fixtures. Like the name suggests, custom homes can also feature special, customized features that are not typically seen in a standard or economy home.


Custom homes are more unique and reflect the characteristics and desires of a specific buyer. Custom homes may also be built with other architectural characteristics that make them more expensive to construct, such as intricate roof lines and higher end materials used on the facade. It is not uncommon to see stone or brick as siding choices.


Luxury


Luxury homes are the top end of the housing market. These are the homes that feature the best of everything. Indoor swimming pools, home theaters, wine rooms and more. The home is built out of the best materials, and it is quite possible that every feature in the home is customized to the needs of the individual that had the home built.


A luxury home is considered the best of the best. These are the homes that are built with the highest grade of construction materials throughout.  There is no expense spared on anything and the amenities seen inside the home are sometimes enough to make your mouth drop!


Comparing Apples And Oranges


When you consider the different types of homes that are out there, it is easier to understand why price per square foot is not the best tool to calculate value. The cost of a single room in the luxury home may match that of an entire economy home.


Price per square foot only gives you average or median ranges to help you understand market trends. So when someone asks is price per square foot the best way to value a home the answer is clear cut and dry – NO it is not!Image title


The best way to show you this is to give you a perfectly detailed example. Let’s say you have two homes that are 2800 square feet.


Home “A” has the following amenities:

  • A single tab roof shingle and builders grade windows.

  • A dropped flagstone walkway and concrete front steps.

  • Carpets throughout the first floor and linoleum in the bathrooms.

  • The kitchen and baths have “stock” cabinetry.

  • Formica counter tops in the kitchen and baths.

  • Plastered door openings with no wood trim.

  • Hollow core doors throughout.

Home “B” has the following amenities:

  • An architectural roof and Anderson windows.

  • A brick walkway.

  • Hardwood floors throughout the first floor and tile in the baths.

  • A custom kitchen.

  • Granite counter tops in the kitchen and baths.

  • Crown moldings throughout the first floor and wide base molding on the first and second floor.

  • Solid doors throughout.

  • Central air.

  • Sprinkler system.

  • Security system.


Now keep in mind these homes are the same size. You don’t need to be a rocket scientist to know that home “B” should sell for significantly more than home “A”.


Real Estate agents who want to use price per square foot to calculate value this way end up looking like fools. Using the price per square foot method with home “A” selling at $400,000 would give you a price per square foot of $142.86. Sorry boys and girls but house “B” sure as heck is not going to be selling for $142.86 per square foot. This however, is exactly how some real estate agents and consumers like to calculate a homes value. 


Although the price per square foot can be useful in learning about the general value of real estate in a particular area, it is poor indicator of a home’s true value. There are so many components of a home that must be considered. Determining the actual value of a home is much more complicated than a simple formula using only two variables.


You need to account for the unique characteristics of each individual piece of property and either credit or debit the value of the property as appropriate, based on recent sales of similar homes. Size of the home is important, but it’s just one facet. As skilled real estate agent I will account for factors like the state of the economy, market trends, views, location, finishes, layout, amenities and styling. These are all important in determining a homes true market value! FIND OUT WHAT YOU HOME IS TRULY WORTH Click this Link >>>>>>> FREE NO OBLIGATION IN DEPTH HOME VALUATION



Image titleGilbert Arizona Realtor – John Nuccio
Cell: 480-202-8970
Email: John@TreehouseRealty.com
Web: John.MyTreehouseRealty.com

Realtor® specializing in Sellers, Investors,

Self-Directed IRA Real Estate Transactions and New Home buyers.


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Phone: 480-426-1590
Dated: January 8th 2016
Views: 2,327
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