Price per square foot…..a useless figure

I never use price per square foot as a way of comparing two houses. I think it is lazy and doesn’t really do much.

There is much more to figuring out value than just one single number can ever tell you.

I just had an agent question why my clients would spend $125 per square foot for the house they chose rather than paying $95 per square foot for her listing. I didn’t say it, but the house that was $125 per square foot was newer, the windows didn’t need replaced, it didn’t have a 20 year old furnace, it didn’t need all the carpet replaced, it didn’t need the hardwood refinished, it didn’t need painting. It didn’t need about $80,000 worth of work to get it close to the condition of the other one. What the $125 per square foot house did have was top of the line appliances, move in ready condition, totally updated and in a district with better performing schools. In the end, that $80k in work amounted to about $12 per square foot more, which is another reason to not use this model for establishing value. It doesn’t reflect the money that needs spent on the house.

One more reason to not use a cost per square foot number to assess value is that it doesn’t accurately reflect the value of the land. The bigger the house, the more square feet to absorb the value of the lot. The house that is now up to $107 per square foot was 2200 square foot bigger, so that lot value looks like a bargain.

If you ever hear a realtor use cost per square foot to compare houses when you are their buyer, I say run. That means he or she is not really looking at differences in condition, view, features, lot, location, ages of important things like roof/windows/HVAC, and all other things that contribute to market value. They are taking the easy way out and feeding you an average number so they don’t have to think. Multiple the size of the house by the average cost per square foot and BOOM, done. Do you want to hit a home run or just be in the ballpark? Because all a cost per square foot number gets you is in the ballpark. In this case though, the listing agent was using cost per square foot as a way of making her listing seem like a bargain…..I’ve got to give her credit for trying.

Oh, and another reason my people bought the $125 per square foot house is that they liked it better. While the other house was very nice and they did like it enough to have on their short list, they didn’t want to go through the hassle of updating when they could get one that was ready right now. There are more factors involved than just price when making a decision.

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