Should we be valuing Sarasota homes using price per sq foot?
Using price per sq foot is very convenient and easy to use. I believe that is partly the reason why people use it. You just take the price per square ft most houses in the area are selling for and multiple that by the number of sq ft in the house. If houses are selling for 100 dollars a sq ft in your area and your house is 2,000 sq ft than the house should sell for $200,000 right? Not necessarily, there are many factors that determine the value of a house.
One of them is the condition of the house, also you have to consider the floor plan and layout of the house. Some floorplans are very good, others are not, and have useless space.
Some houses have enclosed garages, or other space that isn't all that useful. Some might have enclosed lanais. All space isn't created equal. Added on space adds sq ft to the house but is hardly ever as functional as the original structure.
Also some houses are a lot more updated than others. You need to adjust for the updates if you are using price per sq ft. This can't always be done correctly unless you know what the updates are and what they are worth.
I have seen some houses in Sarasota that only have a little over a 1,000 sq ft of living space but are fully functional with 3 bedrooms, 2 bathrooms, a living room and a kitchen.
I have seen other houses that over 1,400 sq ft that are only 2 bedrooms, 1 bathroom and have lots of wasted sq ft.
Some houses have very small bedrooms or bathrooms that are barely functional.
Investors like to use price per sq ft as well as appraisers. However, I don't often see owner occcupant buyers use price per sq ft as a measurment of value, and they are the ones buying the houses.
Sometimes sellers will try to use price per sq foot to justify a higher sales price.
Another problem with using price per sq ft to value a home is that it doesn't take into consideration the location of the homes, or the lots the houses are located on. Even small differences in location can make a difference. If one house is near a major road it's value is lower. A house with a view of a lake, preserve, or golf course is worth more. A house with a big backyard is typically more desirable than a house with little or no backyard. The point is that there are so many variables that go into valueing a house. Using price per sq ft alone will not provide you with the value needed to sell the home and can harm in some instances.
Ideally you want your house to be the first to sell in the neighborhood. That's the goal. How do you do that? Here is my guide to pricing your home.
How to Price Your Home
Competition: To sell your home quickly I think the most important thing to look at is your competition, which is the other homes in your neighborhood that are for sale. Sometimes people really want to live in a certain neighborhood or a certain condominium. If possible look inside those homes. If you have the most attractive home based on the combination of condition and pricing, your home will sell first.
Pending Sales: If a home is sale pending it means that it will close in most cases. Pending sales are important in every market but are especially important in markets that are rapidly decreasing or increasing in value. Pending sales can sometimes tell you the future.
Past sales: Everybody knows to look at past sales. Appraisers will look at the past 6 months of sales in your neighborhood. They will try to pick comparable sales as close as possible distance wise, but generally they can go can use a one mile radius when choosing comps. There are many web sites now that will allow you to do your own research on past sales.
Understanding Your Prospects: Most buyers buy based on emotion, rather than logic, because they will be living in the house. So I place much more emphasis on how many bedrooms and bathrooms does a home have and the floor plan of the home. Some bedrooms are very small and barely have enough room to fit a bed. I have also seen bathrooms that seem to be the size of an airplane bathroom. In some homes the master bathroom is located outside of the master bedroom which is something most people don’t like. There are houses that are only two bedroom/one bath but have a lot of sq ft under air. I have seen many houses that have bathrooms in the utility room. For all these reasons, I believe price per sq foot does not mean much to a buyer and therefore doesn’t mean much to a seller until it is time to get the house appraised. But of course, the home only gets appraised after a willing and able buyer is found who needs bank financing to purchase the home.
What you paid for the house: As a seller you are not entitled to a profit. You can only sell a house for what it is worth. What you paid for it or how much money you have put into it are irrelevant. This is a common mistake I see a lot of sellers make. If you are looking to maximize your profit there are several ways to accomplish this. Here’s 5 tips you should know about listing your home for sale.
The Market Itself: One of my favorite sayings is that the best indication of market value is the market itself. You can do all the research in the world and sometimes get it wrong. If after 30 days you don’t get much showing activity or offers it usually means that your price is too high. It always comes down to price in the end, because any property can be sold for the right price.
I don't think we should rely on using price per sq ft to value Sarasota homes. Price per sq ft is one tool that can be used to value a home, but I don't think it is the best one or the main one you should use. It is much better to look at the competition and base your home price on how it compares.
In any Real Estate market, whether prices are going up, down, or sideways, if you price your home to sell it will sell. There will always be a buyer for your home. Sarasota has always been and will continue to be a place that people want to live. You can contact us for a free over the phone price evaluation of your home.