The cost per square foot of resale homes may be a decent place to start looking for value, but it is not what is best for our clients. When I get a call to list someone's home, often their largest financial asset, the first steps I perform are a tax search and comparative market analysis based on price per square foot. I would not dream of recommending a sale price based on that alone, yet more and more I get agents justifying or arguing value based solely on price per square foot.
What is price/square foot and why is it a terrible way to price a resale? Price/square foot is simply an average. How many homes out there are equal to the average? We need to value placement in the neighborhood (cul-de-sac or busy street), exterior composition (brick, vinyl, wood, etc), counter-tops (granite, laminate, Silestone), flooring (carpet, wood, tile,...), landscaping, drainage patterns, state of repair, etc..... We seem to innately understand that state of repair. Most agents will get an estimate of repair costs and deduct that from the price, but much value in resale homes goes unnoticed.
This is not a blanket indictment. There are many thoroughly professional Realtors who understand how to put together an accurate CMA, and I have found some great value for buyers when agents have failed to properly value home improvements. My point is, ALL sellers expect and deserve a Realtor that is trained in finding and marketing all the value in their home. We as professionals should demand that of ourselves.
In my CMA classes when asked how to determine values for improvements, my answers are all too short. Invite appraisers to coffee or lunch; pick their brain. I can not tell you how much most of them want to be involved in helping discover value. In the process, appraisers are also honing their skills as we discuss what buyers are looking for and value.
A second way is while we are showing new home communities, ask the agent on duty for their upgrades list. You will want to collect these in a variety of price ranges as a 1/2 bath in a $150,000 home costs less than a 1/2 bath in a $600,000 home, however the upgrade cost can be a great guide for valuing differences in comparable properties.
Finally, next time you are in Lowe's or Home Depot, check the prices of some of the more popular upgrades from flooring to plumbing to appliances. This will give you a great idea of the value of amenities in homes you are looking to list. This technique also allows you to cross reference the different values from 3 sources and come up with the most likely value for improvements in your subject properties.
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