Why square foot for the dollar is almost meaningless in real estate

By
Real Estate Agent with Progressive Realty (Boise Idaho) www.Progressive-Realty.info DB-17066
https://activerain.com/droplet/4mjw

People always want to use a home's square foot for the dollar to meaure it's value but since a home is not a commodity, every one is unique and therefore, it's value will be as well.

 

To illustrate this, I will go to an extreme.  The most expensive home per square foot is $226,775 according to this article . . . 

http://www.marketwatch.com/story/worlds-most-expensive-home-per-square-foot-goes-on-sale-2014-08-08?dist=lcountdown

 

In contrast, I just pulled up listings in Ada County (Boise, Idaho) of brand new 3 bedroom 2 bath homes with a 2 car garage and the average of the 119 homes currently offered for sale is only $118.46 per square foot.

 

Which would you choose:

  • one square foot of the home in Hong Kong for $226,775? 
  • a brand new 3 bedroom 2 bath bath 1,619 sq. ft. home in Ada County (Boise area) for $191,596?

Do you buy your vehicle by the pound or your lingerie by the yard?  If not, please don't buy you home on a price per square foot basis either!

 

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. David Laven 08/20/2014 11:32 PM
Topic:
Real Estate Sales and Marketing
Location:
Idaho Ada County
Groups:
Realtors®
The Art Of Marketing You
New Home Construction Selling Information
Broker Price Opinions
Best Business Practices
Tags:
home valuation
cma
house value
price per square foot
market analysis
jim paulson
progressive realty corporation

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Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

OHGoodness... I HATE the pricing by per square foot price approach and have written thousands of words on the subject, but the analogy of "do you buy your car by the price per square foot?" really nails it! 

Aug 21, 2014 08:33 AM #33
Rainmaker
731,785
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

Having lived in Hong Kong, I'd choose it in a heartbeat! Not really a fair comparison - Hong Kong is a tiny area, where every inch of land is precious, hence the high prices. 

Aug 21, 2014 10:51 AM #34
Rainmaker
875,983
Janis Borgueta
Key Properties of the Hudson Valley - Newburgh, NY
LIC RE Salesperson

Yes, I agree. The only time it matters is when you are pricing out a floor. The home itself by square foot doesn't mean much to me. I was actually surprised when I started real estate that our area focuses very little on it. Acreage is another issue in my area.  If you can only build one home on a eight acre property, then it wont sell to a builder for much more than a single acre. No return on the property and no added value.

Aug 21, 2014 11:48 AM #35
Rainmaker
163,403
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Although $/sf often doesn't tell you much per se there can be exceptions. New construction is an example. One of our local builders offered an alternative layout with an additional 100sf in the form of a 4th BR or den for only $5,000 more compared to the basic design priced at $175/sf. Many buyers saw this as a great deal, even those who bought the 3 BR version!

 

Aug 21, 2014 02:29 PM #36
Ambassador
4,299,346
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Jim, good point - however, it's all about location, location, location - correct?

Aug 21, 2014 02:32 PM #37
Rainmaker
163,403
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Quite correct Praful. I once built a home on a $20,000 lot and sold it for $415,000. The same house on a $45,000 lot I looked at in a very upscale neighborhood would have yielded about $600,000.

Aug 21, 2014 02:48 PM #38
Rainmaker
2,750,663
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher
Kitchens, bedrooms and bathrooms have always been the most meaningful that I can think of no matter what Era we've been in.
Aug 21, 2014 03:53 PM #39
Rainmaker
2,750,663
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Olga Simoncelli, i'd love to hear more about Hong Kong.

Aug 21, 2014 03:56 PM #40
Rainmaker
2,750,663
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

MayI repost this and relate it to feng shui?

Aug 21, 2014 04:58 PM #41
Rainmaker
1,426,397
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

And the other things is, do they even measure square footage the same?   Price per square foot is meaningless (even just as a math equation) if the square footage in one area includes a finished basement and in the other doesn't.

Aug 21, 2014 08:44 PM #42
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Praful Thakkar Location is a (or should I say 3) of the factors in value, but there are many factors beyond that.  If it was the only factor, you should never build any home with more than bare minimums for resale purposes.  There is a definate point of deminishing returns; however, some upgrades are well worth it!

Aug 21, 2014 09:02 PM #43
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

James (Jim) Lawson, DBA , I know some builders that use only a cost per square foot model when they build for clients, while builders that understand their cost breakdown better understand that some designs are more expensive to build than others.  In one community the same builder had plans that varied $40 per sq. ft. different in their "base price" which strips out the lot premium variable.

For example, is they pushed out the back wall, and added 2 more trusses, they would gain 4 feet across the 50 foot wall so the home would grow 200 sq. ft. and they wouldn't have to add any more windows, enlarge the kitchen, garage, bathrooms, etc.

In another plan, they had a covered side deck, but if they enclosed it, they would have no more roof, save two 12' exterior walls, 2 windows, some concrete and could call the room sq. ft. and grow the house by another 144 sq. ft. but it would have distracted from the look they were going after.

If you are going strictly for sq. ft. values, you should only build square homes with minimum roof slopes, but I prefer homes with some style, higher pitched roofs and a few upgrades.

Aug 21, 2014 09:11 PM #44
Rainmaker
1,559,270
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

This is so true.  I am looking at downtown condos which can equate to a very different $/sq. ft. when compared to a home in the 'burbs!

Aug 22, 2014 03:26 AM #45
Rainmaker
372,890
Judy Jennings
The Green Company - Ashland, MA
Broker - The Lanterns at Warren Woods - Ashland MA

Great analogy, although I'm not sure I would have the courage to ask one of our buyers if they bought their vehicle by the pound. :)

Aug 22, 2014 03:45 AM #46
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Judy Jennings , if you aren't willing to ask that, how about asking why Victoria Secret sells lingerie for more than Walmart charges for a tent? ;)

Aug 22, 2014 05:00 AM #47
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Laura Cerrano you are welcome to repost, thanks!

Aug 22, 2014 05:01 AM #48
Rainer
409,734
Raul Rodriguez
Covenant Partners Realty - San Antonio, TX
Looking out for the client's interest and not my p

I normally determine price by market value.

Aug 22, 2014 06:03 AM #49
Rainmaker
163,403
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Good examples Jim of creating some low cost SF. My favorite way to get a really low-cost/SF house is to use all the space in the building envelope like finishing attics and cellars. The space is there so why not use it. There are challenges, however, like zoning resolutions, building codes, an accommodating design, waterproofing and insulating to mention a few. Also, not all buyers value using these types of spaces for living purposes. 

Aug 22, 2014 08:15 AM #50
Anonymous
Tara Winfield

I argue this point all the time with buyers!!!!! It's such an abstract number to get hung up on....

Aug 22, 2014 06:58 PM #51
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

When I wrote this blog, I quoted the average price of a new 3 bedroom 2 bath home  in Ada County (Boise) Idaho.  I just went back and looked it up again and found . . . 

a brand new 3 bedroom 2 bath bath has increased to 1646 sq. ft. (from 1,619 sq. ft.) home in Ada County (Boise area) and the price has increased to $199,664 (from $191,596). The price per square foot has increased from $118.46 to $121.22.

Jan 20, 2015 11:38 PM #52
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