USING “PRICE PER SQUARE FOOT” AS A MEASURE OF VALUE
“How much is it per square foot”, seems to be one of the most often asked questions by the buyers I meet. It is a valuable tool but, more useful in some instances than others and should not always be relied upon as your exclusive measure of value.
It works best with tract homes in homogeneous neighborhoods. These are the ones you find in metro-Phoenix, Las Vegas, Texas and Florida where there are usually 5 standard models of homes for the subdivision. An important example: these are usually 3 bedroom, 2 bath, 2-car garage homes, all with a similar style and all built within a compressed time period. Of special note is that garage. An appraiser will value a garage or a basement at a lower square footage value than the living area of the home and you’re getting a “blended” square footage price.
If you want something “unusual”, for instance: mountain view, larger lot, land backing Forest Service, a location near coveted community services or site near a river or lake—that adds value. And it is a measureable value. An appraiser will assign more value to a larger lot or ocean view. Those things were more desirable and cost more when the home was built. Put more simply: compare apples to apples. Just because that metric makes easy logic to you, is no sign it works for the market or the home you’re looking to buy. I read that in 2018 home in the California Bay area averaged $900 a sq. ft. and in Austin, TX, $210 a sq. ft.
Let’s look at another example, let’s say: a getaway, part time 2nd home. Maybe it has no garage and maybe you don’t care or don’t need one. Maybe the appealing feature is that it is near a lake or better climate zone. Let’s say the asking price is $200,000 and it’s just a 1,000 sq. ft. home with no garage, so that’s $200 a square foot. Well, in your primary home neighborhood, maybe you can get something for $400,000 and it’s 2,000 sq. ft. so that’s also $200 a sq. ft.—but, it has a garage. Seemingly you are getting a better value with your primary home. You’re paying $200 a sq. ft. for the livable area PLUS you have the garage. So with that comparison and using the sq. ft. analogy, you’d have to say the 2nd home value is not as good.
Well, what is it going to be? What is the correct sq. ft. value? A REAL $200 a sq. ft.—as in the vacation home, or the calculation of your primary home? The answer is that they are not comparable. They’re apples and oranges. If you bought your tract home new for $400,000, the livable part really isn’t valued at $200 a sq. ft. You’ve blended in a cheap garage.
There are other significant ways to judge value: comparable homes in the same market or maybe a recent appraisal. Those are objective. Then there is the subjective: do you like it? Does it represent the lifestyle change you’re looking for? Can you make income on the property as a B&B? Does it have one of those getaway qualities such as near water or recreation opportunities you don’t have at home? Buying a home in a new place either as a primary or secondary residence is going to be an education process. You will have to put your thinking cap on and stimulate your imagination. There is no one, single, easy answer with which to value the home.