Why appraisers do not love price per square foot

By
Real Estate Appraiser with Massey & Associates

Often, buyers and sellers are under the impression that it is simple to price a house by its square footage. Nothing is further from the truth, unless of course, all the comparable properties considered are within a couple square feet of each other and have the same quality and condition and are in the same immediate neighborhood with no variation in the value of the site.

 

Underneath all is the land. This means that a house that sits on a hypothetical 60x120 sqft site should have the same underlying value if the house were 1,000 sqft or 2,000 sqft.  If land is selling for $50,000 for this 7,200 sqft lot, then the value of the land does not change in value because it has a larger or a smaller house on it. 

 

Take this following visual for example, it includes median sales prices over time for all sales in an area, as well as median sales prices over time for houses that are between 800-1200 sqft. Notice how the smaller houses measured with the moving average trend line, are sold for quite a bit less than those that encompass the entire market (in this case, a school district).  The median size for the houses within the school district as a whole in this sample, were largely between 2,050 and 2,250 sqft. The median size of the smaller houses was largely between 950-1050 sqft.  Therefore, the median price would be expected to be half for the smaller houses than the market as a whole, but that is not the case. The median price of the larger market sales was around $360,000, while the smaller houses was around $225,000, or 37% less, not 50% less.

 

 

 

Take the same information looking at price per square foot, and the scenario is now flipped on its head. The blue moving average line is that of price per square foot, which favors the smaller houses, running around $225 per sqft on average while the wider market was showing around $170 per square foot, or around 24% less per square foot.

 

 

 

 

Another way to look at this is, what is the value of a Tesla per pound?  What is the value of a Yugo per pound? Obviously, they are not the same. This is the same idea behind price per square foot for real property valuations. If you have questions about how an appraiser values a property, please reach out to your local appraisal expert and ask questions. Better yet, if you need to know the value of a property, engage a professional to help answer your questions.

 

Hopefully this helps clear up why it is that appraisers do not simply use the price per square foot method in determining the value of a property. 

 

 

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Rachel Massey

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