How Important is Square Footage Price, Anyway?
The real estate market really is always changing, it. We get into hot “sellers’ markets” (like we’ve been in for the past year, really, in most areas around Richmond), and it seems like things are constantly going up. Until, well, they don’t. This market analysis business is for sure a healthy combination of art and science, no matter how much we wish we could simplify it and make it more straightforward.
Seldom are there two homes that are identical, in the same area, that sell reasonably close in time to one another- at least enough to be comparable.
Hmmm. So where do we go? Human nature is to find patterns, to try to come up with a “formula” to make sense of seemingly random events and data, right? How about if we just use square footage price? That should do it!
Well, kind of. A little bit. Sometimes. But with qualifications. (Yeah, I know. Rats! That would have been super easy.)
Square footage price is just one of a number of variables in that equation. (And I use the term equation loosely- remember that bit about art and science?) Let’s look at it further…
Are we truly comparing apples to apples? The square footage price of a home tricked out with marble, granite, newly finished or refinished hardwoods, and other high end finishes is going to drastically differ from the square footage price of one with laminate counters, vinyl, dated bathrooms, and the like. As it should, right? That’s pretty obvious.
But what if I have a 1500 square foot house with loads of upgrades and updates, but the only other place in the neighborhood that has sold recently is a somewhat dated, 2300 square foot home? What if one is on a “better” street? Has a “better” yard? How to determine the price then?? What if they each have “good” and “bad” features?
Square footage price really is just a variable. Others are tax assessment (again, JUST a variable, and seldom a real marker of actual value!), condition, upgrades, and adjusting for those upgrades or lack thereof. What about the size of the lot (and the condition of it!)? Does it have a garage? A pool? Paved or gravel driveway? None of these things are included in the square footage price, obviously, but they can seriously impact the value- for good and bad.
Another caveat to looking too heavily at square footage price is that it scales for size. In lots of areas (in our market, for sure) you may pay $150,000 for a house that is 850 square feet. That’s $176.47 sf. So, let’s pop one street over and look at the similarly finished 2000 square foot home. Does that mean it’s worth $352,000? Hmmmm, probably not. Maybe close, and maybe not. In plenty of areas, It’s probably going to be closer to $250,000- $275,000. Because the more square feet, typically you don’t pay the same per sf price. In most cases, smaller homes get a larger square footage price, and larger, a bit smaller. Make sense? (Or does it make you a little confused?) It does make sense, if you really think about it, but you have to include those other variables as well, to get the whole picture.
If you’re looking only at the price per square foot, that larger house may shake out to be only $125 per square foot. Does that mean it’s a better value? Again, maybe. Maybe not.
The best thing that square footage price can tell you is the trend in that market or neighborhood. Was the average or median square footage price a year ago $200 per sf, and now it’s $225? That can tell you values are going up, but you absolutely cannot use the square footage price to calculate an offer price, nor will an appraiser use that to value the home. It’s simply not enough information!
This is another reason why sites like Zillow cannot take the place of a real, live, real estate professional. An algorithm cannot see the nuances, or get the whole “boots on the ground” feel for the neighborhood, area, or micro market.
What questions can I answer for you? Are you trying to get an idea of the value of your house? Have your eye on a neighborhood (or a specific house) that you’re trying to assess? Is it the right time to make an offer? Should you wait? I really can help. Just reach out- let’s talk!