Price Per Square Foot Doesn’t Work To Price Homes

Stop Using Price per SqfUnfortunately price per square foot is how I determined value when I was new to the business. It’s also a formula that inaccurate-automated-home valuation tools use. It’s a formula that outsiders not familiar with an area use. It’s a formula that will get you within 20% of the actual value, not 2%. Once I learned how to accurately price homes, price per square foot is a formula I no longer use.

What are the most expensive rooms in a house?

The kitchen and master bathroom are the two most expensive rooms to build. Normally you have one of each per house. I’m talking about homes between 1,000sqft and 6,000sqft, obviously larger homes can have multiple kitchens and master baths.

Why would you divide the most expensive rooms equally across a variable like sqft?

Does lot size or location matter?

How does $/sqft account for the size, location, views, or privacy of a lot? Should a house that backs to N. Scottsdale Rd be compared to one that is in the middle of the neighborhood? Even if it’s the same size house or same floorplan? Of course not.

If you have two identical houses that “cost the exact same price per square foot” to build but they sit on different sized lots, how would you use $/sqft to value them? You couldn’t. You would have to know the value of being on a larger lot first.

Learning the Values of the Features

This is the secret that REALTORS® either won’t tell you or don’t know they know. Successful real estate agents have a value for everything; larger lots, larger kitchens, open floorplans, nicer finishes, backing to a major road, being inside a gated community vs a guard gated community, having an HOA or not having an HOA, having a pool vs no pool. Not until I learned the values of these features could I truly quote home values.

Price per Feature

Square footage is just one variable that goes into feature-based pricing. If people ask for their price per square foot, I first run their home through the price per feature formula then divide my number by their square footage. Not the other way around.

It’s why I ask for # of stories, known upgrades, and condition of property on my Home Value Estimate form. Without knowing these details there is no way to determine value. Even if I’m given the square footage.

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