Valuing a House Using Price Per Square Foot

May 13th, 2015

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I commonly hear realtors and homeowners use price per square foot calculations when assessing the value of a home. But using price per square foot as a shortcut to determining the value of a home is flawed. Price per square foot is not a reliable indicator of market value because when you only calculate the relationship between size and sales price you are ignoring all the other variables of a home that a potential home buyer analyzes like view, lot size, level of finish, location, and much more.

 

I hear more and more buyers and realtors talk about home value as a function of price per square foot, and that is a far too simplified measure to value a home. It is exceedingly rare when you might be comparing two properties that are identical except for the square footage. If that were the case, and the view, lot size, bedroom and bathroom count, level of finish, parking and all other facets of the home were absolutely identical, then price per square foot could be an accurate indicator of value.

 

The reality is that comparison of identical homes almost never happens. The more different homes are, the less reliable a discussion of price per square foot becomes. Price per square foot can be a calculation to use as a rough summary, but should not be used in place of a detailed appraisal valuation.

 

The bottom line is that an overly simplistic formula for price per square foot will not take the place of a detailed analysis of all the complex variables of each home to make a final value determination.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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