It is very common that a Buyer will ask: “What is the Price per Square Foot?” when inquiring about a home price and to gage in their mind if it is a fair asking price. It is important to keep in mind that the $/SF (Price per square foot) is not the end-all, be-all. There are numerous other factors that need to be considered. Example, two homes on the same street are listed for sale at $2M, one is 2,000 square feet, the other is 2,800. The 2,000 sf home is $1,000 $/SF, ($2M/2,000=$1,000 $/SF) the 2,800 sf home is $715 $/SF. At first glance it may appear that either the 2,800 sf is either a fair price or under market, whereas the 2,000 sf home is a fair price or way overpriced.
The problem with the $/SF mathematics is that it only takes the straight equation of Asking Price divided by square footage. There are numerous other items to take into consideration in seeing if the home is fairly priced. In this example, the 2,000 sf home has a pool with views from the upper level. It was recently completely renovated including all the safety basics (plumbing, electrical, etc.). It has high ceilings and a direct entrance from the garage and has a gated front entrance with gorgeous landscaping. It also has a nice grass yard area and is completely private. To top it off, it has expensive tiles and new state of the art appliances Whereas, the 2,800 sf home has a bigger home next door that peers into the backyard. The kitchen was recently renovated but none of the bathrooms were. It does not have a pool or view or front gated entrance. It is move in condition, but could use some updating.
Another example is comparing a small home on a big lot. The $/SF will not take into consideration the land value. If there is a 1,500sf home sitting on a 12,000 lot, clearly if there wasn’t a home there at all the lot would have base price. Which is why smaller homes on bigger lots will have a higher $/SF. Also keep in mind that many homes in the hills will list the entire lot square footage, when sometimes only part of it is flat or easy to build on – this is always deceiving with hill lot sizes.
Another example is usable space, some homes have wasted space. We have all been in homes that on paper have a nice square footage listed, but upon walking around you see areas that are just unusable space as you shake your head wishing it was part of another room. But that extra square footage accounts for $/SF.
Bathrooms are also a big factor. Seeing the verbiage “en-suites” means each bedroom has it’s own private bathroom. Sometimes the bathroom count is misleading as there might be a powder room and then have 2 bedrooms share a “jack-n-jill” bathroom or sometimes with the older homes, you will have the bathroom across the hall that both bedrooms have to walk to.
When an appraiser appraises a home, he will take sold homes within the proximity of the home and try his best to find similar comps. However, in many areas like Brentwood, Beverly Hills Post Office, etc., you can have a $3M home blocks from a $5M home. So the appraiser will start with the comparison of the sold homes but at the end he will subtract or add for the additional items I listed above and more to adjust the $/SF.
So please don’t let the Price Per Square Foot make you feel a home is overpriced or under priced for that matter without further inspection.
