Price per Square Foot is the DUMBEST Valuation Method

Real Estate Agent with Keller Williams Realty Louisville East

I've just got to get this out there:  Price per square foot is the DUMBEST method for determining a home's market value.  There!  I said it!  I know, I know, it's all the rage to talk in terms of price per square foot, it's the sort of thing open house tire-kickers like to throw out there to boost their credibility, and it's even a value tool many "professionals" use when talking asking prices prior to listing a home.  MAKE IT STOP!

It's not going to stop.  I know this because this is how the public perceives value.  There's basically no way we can eliminate this terminology from the home buying/selling handbook.  It's far too ingrained in real estate vernacular, but let me tell you:  Price per square foot is on the same level as the notion that there is a "national real estate market" when it comes to misleading people about home values.

Disclaimer:  There are a couple of exceptions to my rule.  They are:  1.  Cookie-cutter neighborhoods wherein there are no more than 3 floor plans, and the houses are all generally the same in terms of quality of construction and age.  2.  SOME condos.

In a real estate market like Louisville, KY, it's nearly impossible to correctly value homes using the price per square foot method due to the age of the housing stock, the degree to which some areas have been renovated or not, and the variety of the floor plans one might find. 

NOT ALL SQUARE FOOTAGE is created equally.  I've seen 3,000 square feet of chopped up mess sell for quite a bit less than a 2,000 square foot home in which the floor plan has been modernized and maximized for today's living.

Price per square foot, though it sounds like it's only valuing square footage, is actually easily thrown off by an unusually good or bad feature within a home.  A home with a pool, a home that backs up to the rail road tracks, a home that has an unusually large yard, etc. will have a higher or lower price per square foot depending on the severity of the effect the particular feature has. 

And what on earth do we even mean when we say, "123 Main Street is listed for $200 per square foot"?  Is the finished basement included in the calculation?  Is it not?  I've seen price per square foot quoted either way, so one can see again how confusing this sort of thing can be.

Finally, price per square foot gets even less trustworthy when the subject property is either larger or smaller than the predominant home size in a given area.

Consequently, when it's time to sell real estate, buy real estate, or even measure real estate, contact us for an accurate and true market value estimation.  We use comparables that best match your home, and we know how to differntiate for various features between your home and the comparable sales.  Contact us anytime at 502-509-9278 or and we'll be glad to assist you!

Comments (4)

Tamra Lee Ulmer
Arizona Resource Realty - Payson, AZ
NRBA ~FORCE~ Over 1000 REO Assets SOLD!

That's part of it. Thank you for sharing, have an outstanding week!

Jul 27, 2015 05:46 AM
Bob Stevens

Opinions do matter! Nice post Chris.

Bob Stevens- Louisville Home Inspector 

Jul 30, 2015 04:03 AM
Richard L. Sanderson
Richard L. Sanderson Consulting - Kalama, WA
helping improve local property tax systems

Chris Thomas - Yes, you are right using a price per square foot of living area for residential property is not very accurate. That's why when appraisers develop and report an opinion of value they make adjustments to comparable sales for the very things you point out in your post. It's only a "rule of thumb." And very early on in my appraisal career someone told me "and there are NO rules of thumb when it comes to property valuation."  (Sorry I'm commenting late. AR does not have a very good search feature for keywords, like valuation.)

Aug 29, 2015 10:15 PM
Brian Daniel

What about price per chicken tender at Joella's? You can never pay too much - it's always worth it!!!!!

Oct 14, 2015 04:41 AM