How To Use Price Per Square Foot When Valuing A Home • Real Estate

How Price Per Square Foot Fails

If all else is equal, the price per square foot method is an accurate way to value homes. Unfortunately, it is very rare when all things are equal between two homes. Here’s where they are major differences that affect the valuations of homes. When considering the two homes used as an example above, I would want to know several other factors:

  • Frontage: Are they both on similar lots? In many Tallahassee neighborhoods, there are beautiful lakes. The homes on the lake sell at a higher price per square foot than homes not on the lake. The same can be found in golf course neighborhoods and neighborhoods that back up to busy streets. The value of the dirt is different throughout a neighbourhood. And here’s a final thought on the land beneath a home. If you use the average price per square foot approach to home valuation, two homes out in the country could be grossly misvalued. Imagine a 2,000-square-foot home on an acre versus a 2,000-square-foot home on 100 acres. Many models would give them a similar valuation.
  • Maintenance: Are they maintained similarly? Or has one home been recently updated, and the other is sporting 1970s shag green carpet? As anyone who watches HGTV, the home’s condition matters a lot. Does one have a newer HVAC system? A newer roof?
  • Grand Amenities: Homes with swimming pools are a great example in Tallahassee. But so too are homes with tennis courts, movie theaters, extra garages, etc. How does adding a pool change the square footage of a home? It doesn’t! Does that mean a pool adds no value to the home?
  • Source Of The Square Footage Measurement: Different areas have different norms, but square footage calculations in Tallahassee typically come from a recent appraisal or the Property Tax Appraiser’s online portal. If there is no appraisal, and the home has not been sold in recent years, the square footage may have changed. Imagine using the square footage from the tax rolls on a home with an owner who has doubled its size. The online tools will not likely know about the size change and will grossly undervalue a home. This is often seen in neighborhoods where people buy to renovate, and many valuation tools fail to recognize that the average home size in the neighborhood has grown!

These are essential factors in a valuation, and it’s why online tools miss the mark.

A home’s value is impacted more by the features that it contains than by its raw size. Buyers are often concerned with the number of bedrooms, so a 4-bedroom home at 1,950 square feet is often valued higher by buyers than a 3-bedroom home at 2,000 square feet in the same area. Generally speaking, larger homes are worth more than smaller homes, but the features each home contains and the home’s condition are important too.

Other Industries

You don’t buy a car by the pound (mileage and condition matter most when comparing same-year models). Boats aren’t sold by the square foot, nor are the shares of publicly traded companies sold by the amount of space the company uses. In real estate, price per square foot is a great way to estimate how values ​​are collectively changing, but there are too many variables for price per square foot to be effective in determining the value of a specific home.

Accurate Home Valuation

If you want to know what your home is worth, you need an experienced, active real estate listing agent to walk through your home and prepare an accurate valuation. Beware of real estate agents who give you a valuation purely on a price-per-square-foot formula.

You want them to consider the entirety of your home’s value, not a rule-of-thumb estimation. Don’t rely on websites that pin a value on your home’s size, and make sure your property tax assessment of size is either accurate or not used at all.

If you want more information on home valuations in Tallahassee, whether selling, buying, or both, give us a call at (850) 366-8917 or drop us a note and we will be in touch right away.

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