For understandable reasons, buyers and sellers don’t usually agree on how much a house is worth. Buyers want to get better value for their money, and sellers want the best price for their property.
This can lead to offers and counteroffers, going backward and forward between the buyer and the seller. While both parties believe they have solid reasons for the offers they are making, it can take some time before an agreement is reached.
A method that can create these problems is pricing by square footage. First, the sq ft calculation, escapes many people. Getting an accurate square footage doesn’t happen as often as it should. When it is incorrect it can throw home values off substantially.
Should you use price per square foot when buying or selling a home anyway? NO! Doing so, is the perfect way to come up with the wrong market value for a home.
Let’s have a look at calculating price per square foot and why it is not the best way to arrive at market values.
How do you calculate the price per square foot?
Calculating the price per square feet of a home is relatively straightforward. If you have the price of the home, divide it by the square footage to give you the price per square foot.
If you had a 2,000 square feet home that was for sale for $350,000, the price per square foot would be $175. You can, of course, calculate it the other way. If the same house had a price per square foot of $200, the home would be valued at $400,000. 2,000 x $200 = $400,000.
Though these calculations seem simple, it is always possible for errors to happen that could result in a mistake costing thousands of dollars.
Making mistakes with square footage calculations
Though the calculations to find the price per square foot are simple, it is easy for errors to be introduced. Whether someone has written down a number incorrectly or there is a discrepancy in the measurements, it could be a very costly mistake.
These measurements are put in the multiple listing service that the public relies on.
How to measure the square footage of a home?
While you might imagine measuring the space in a home isn’t contentious, it somewhat is. There are a few different methods for how to find the square footage of a home:
- Measuring inside the property, following ANSI standards
- Measuring the outside of the house
- Using the information in tax assessments
As you might imagine, these different methods to measure the square footage result in different answers. Using the method that gives the highest square footage will benefit the seller, though the buyer will want the opposite.
Even if the same measurement standards are being used, it doesn’t necessarily mean that there will be the same results.
If two different measurements are taken by different people, it is still possible that they get different answers even when measuring the home in the same way.
Finding the price
When the square footage of the home has been measured, the price per square foot also needs to be found. This number can come from a comparison of similar homes in the same area.
When finding comparisons, ideally, you are looking for homes that are the same size or close to it. It might be difficult to find homes exactly the same size, but a range of plus or minus 10% is a good guideline.
However, there are many things that can change the price of a home. One property might have better features than another, even if they are similar sizes. These extra amenities could be worth tens of thousands of dollars, maybe more.
The location of a property could be far superior to another.
Given so many other factors that play a role in value, using price per square foot is an awful method for calculating market value. It’s why appraisers and real estate agents rely on a comparative market analysis.
It might work for cookie-cutter homes
The only times that price per square foot might be somewhat accurate is when you are comparing cookie-cutter homes, condos, or townhouses all built the same.
Some projects the builder did not deviate too much from what he offered home buyers. Upgrading options were not substantial and there were minimal differences in floor plans.
Since they home are all in the same location that variable is also eliminated.
Is using price per square foot a good way to find how much a house is worth?
Whether you are buying or selling a home, using the price per square foot valuation isn’t the best method. You can add or take away for things like the condition of the home, features, age, and anything else that could affect the market value.
Even if you choose to use price per square foot to decide how much a home should be bought or sold for, it is only part of what should factor into the price.