DOES "PRICE PER SQUARE FOOT" MEAN ANYTHING IN RESIDENTIAL SALES?

Very knowledgeable post....Paula ruler of all she surveys in Real Estate.....at Prudential Douglas Elliman Real Estate....thank you and your post hit all the points......In the end, as long as we see the value is what counts and not necessarily how we got there....

Best

Hi Paula: Price per square foot seems to be a key measure in some areas, and scorned in others. Last week, a guy from Colorado taught a what was supposed to be a technology CE at our annual Illinois Assoc of Realtors conference. He was yacking away about the importance of doing side by side comparisons in CMAs (well duh) and he insisted that price per sf was the most important factor. We use price per sf pretty much only for new construction in single builder or developer projects. Of course we look at it when pricing for a resale or a buyer, but it's not the deciding factor.  When an appraiser in the audience (of about 500) stood up and said, no, we typically do "xyz", the CE Colorado guy "you're wrong". It did not go over well.

I do a fair amount of relo work. This year I had clients from Atlanta and Minneapolis who really stuck to their price per square foot model. Both these clients had built their previous two houses, so this may be why they think this way.

In my market, price per sqft is just a starting point, and then adjustments are made from there. Is there a view? Is the yard bigger? Stucco vs stone vs brick?

I use price per square foot and compared it apple to apple.  It has yielded my clients a higher selling price here in Chicago.  I use it for the lower priced homes under $450K but the upper bracket homes say at $650K and up ... I wouldn't follow the rule. 

Price per square foot is one measure of value, but it's the one measure that usually isn't going to get the buyer to fall in love with a house. If they request it, the request is respected and provided, but it's rare for a smaller competing property, equally priced, to be eliminated if a buyer loves it for the myriad of other elements that come into play. So, it matters to respect the request, and the thinking behind it- but I've never heard a buyer say, "I just love my house because of the price per square foot!"...then again, I've never sold a house to an appraiser, who would likely have the keenest appreciation for that element!

Sorry Paula, but I have to continue to be a dissenting voice.  Your initial question in this blog, as I recall, was "Does price per square foot mean anything in residential sales"?  I'm not sure that anyone has suggested or would ever suggest that someone would call a real estate agent and say something to the effect "I can't spend more than X per square foot". That doesn't mean that the price per square foot doesn't mean anything (in my opinion).  I completely acquiesce to you that people aren't shopping for real estate in that manner.  It would be foolish.  That said, because the number absolutely matters to mortgage lenders, it will always "mean" something on an appraisal report.  I promise you that if an appraiser uses a comp on an appraisal that has a huge disparity in square footage to the subject property, the appraiser is going to have to give a really good explanation for why it is being used, and make the appropriate adjustments, based on the square footage disparity.  Otherwise, the underwriter will throw it out, and ask for a new comp(I saw this happen many times over the years when I was in the mortgage business).

I think the only time you can really use ppsf is in comparisons between apple and apples, and even then, just seeing the variance in square footage and their respective sales price would be a better indicator of which is a better deal. At least to me. I don't really use ppsf for anything.

You always refer to customers and never clients.  This must mean you are not working as a buyer's agent and that means you represent the seller.  So, as Mitchell said you not legally responsible to provide a customer with comps and market analysis.  You are however obligated to provide it to clients.  

I sell and market apartments in Manhattan, so this post really hits home. 1000 square feet doesn't necessarily mean that the apartment will net out to be that size. We are admonished to not quote square footage, and to append "approximately" to any discussions about someone's stated number. I always explain why the number is not one that can be relied upon, occasionally suggesting that they measure for themselves to get a true indication and comparison.

Comment #112 - We all must keep in mind here on AR that the laws vary from state to state. Here in New York, your client is the person you represent in a transaction; and it can be the buyer or the seller. We have certain fiduciary responsibilities to our clients. The other side of the transaction is the customer, who we owe honesty and fairness.  If we are representing the buyer, we can give them comps and an opinion of value based on market data. Then we get to dual agency, but that's fodder for another post. Now, that's just the technical side of things - many brokers use the two terms interchangeably in conversation.

Louis, I am licensed in New York State and Louisiana.  I practiced as a Broker in New York State for 18 Years. In absence of a buyer signing an Agency Disclosure with their agent in New York State the agent represents the seller.  That is my point.  In this post the agent is working with a customer not a client.....providing the square footage  as requested to a customer is perfectly okay but advising a customer as to why square footage is not the way to determine price and what is the way, to advise a customer about offers etc is questionnable at best.  If you are a dual agent you can't advice either party.  If a customer asks you for square footage you should give it.  If a client asks for square footage a discussion should ensue about the validity because "you represent them".

Who you represent and how makes a hugh difference in how you respond to this question.  It is not just the validity of the question. It's the law.

PPSF  is useless in my area (Northern Virginia).  Too many variables; i.e, lot size, foreclosure/short sale, updates, home condition.  I never use it.

Hi Paula,

I think that you can use price per square foot in certain circumstances.  In our area just a half hour north of Manhattan in Westchester County most agents don't use it.  Other factors are more important, age, condition location etc.

You have to understand the market and be very careful, in a condo or co-op you could use it in the same building.  Our MLS allows us to do a map search, I will use it in neighborhoods that I know, where the properties are similar sized and aged.

The place that I think it can be used best is in market statistics.  We know that the median price of a home and the average price of a home can be greatly influenced by a lot of higher end sales or a lot of lower end sales, but if you look at all the sales and the average psf you will get a decent indication of how the market has changed.

Great post with a lot of interesting responses.

I almost never have buyers compare properties by price per square foot.  Maybe because each property here is unique and we don't have a lot of cookie cutter homes, where it might apply.  As you say, it takes a certain kind of person to care about it.  Great topic though.