Price Per Square Foot: Why It's Not as Important as You May Think

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With the rise in use of sites like Zillow and Trulia over the last few years, buyers have started putting a much greater emphasis on measures of value like the average price per square foot (PSF) of homes in a neighborhood. I always caution clients when doing this, because unless you are comparing identical floor plans in the same building, there will be too many variables involved to give the PSF a 1:1 value. This doesn’t mean that you should disregard the number altogether, just use it more as a gauge as opposed to a pair of apples.

Too often buyers are scared to pay more (or sometimes less) than what they are seeing as the average PSF for sold homes in an area. Factors to be considered when determining how well the properties match up (and thus how to weight the PSF) are almost too numerous to list:

  • Proximity to shops and dining

  • Accessibility to main roads

  • Located on a busy street

  • Level of finishes (all remodels are not created equal)

  • How long the property sat on the market

  • Natural light

  • Ceiling height in the basement

  • Number of bedrooms

  • Lot size

  • etc.

Knowing that no two properties are completely alike, a much more appropriate way to value properties is to consider all of these. The thing that we’re not considering here is that the house is also worth the seller will take for it. When a seller sees two 3BR houses around the corner with similar features sell for $350k, that’s the benchmark. The fact that one worked out to be $205/sf and the other $235/sf isn’t what’s important; what’s important is that two 3BR homes just sold for $350k.

Like everything else in real estate, while properties are commodities, each one is unique. All of the measures of value we use need to be adjusted for a specific property. Try not to get too caught up in the numbers.