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$ Tips for Determining a Home's Market Value $
Wouldn't it be nice to have an easy way to find out how much the home
you want to buy or sell is worth? Some consider price per square foot to
be a valid way to determine market value. The price per square foot is
arrived at by dividing the sale price or estimated value by the number
of square feet.
In theory, by
using the price-per-square-foot approach, you could easily determine
what price to pay for a listing. All you would have to do is find out
the price per square foot for a number of properties that recently sold
in the neighborhood that are similar to one that you're interested in
buying. Then average these figures and multiple the average price per
square foot by the number of square feet in the home you want to buy.
Or, if you were
selling, you could determine how much your home ought to sell for by
finding out
 how
much buyers paid on a price per square foot basis for homes similar to
yours.
There are
shortcomings to this approach. In areas where there is extreme
variability in home size, style, improvements and amenities, price pre
square foot could mislead you.
Consider three homes that sold within the last
six months in Piedmont, an upscale community in the east San Francisco
Bay Area. All had about 2,600 square feet. One sold for $712.16 per
square foot, another for $617.98 per square foot, and the third sold for
$484.18 per square foot. The average of the three is $604.77.
Given the range
of variability, if you used this average to base your decision on what
to offer on a Piedmont listing with approximately 2,600 square feet, you
could end up paying way too much or offering way too little. Likewise,
if you used this information to select a list price for your home, you
could end up pricing it too high or too low.
HOUSE HUNTING
TIP: For a price per square foot to be a reliable indicator of value,
you need a standardized housing stock. For example, it would probably be
reliable for condominiums in a development where all the units were the
same size, had the same ownership dues and offered the same amenities.
But, as soon as variability enters into the housing stock, price per
square foot alone won't tell the entire story.
When planned
unit developments are new, price per square foot is a useful gauge. But,
as these developments mature, so does the housing stock. Some people
will completely remodel within a couple of decades and others may make
only minor modifications. And, then there are those homeowners who do
nothing, thereby creating a neighborhood eyesore.
In older
neighborhoods, where homes weren't built at the same time or in the same
style, there's even more diversity. Within this varied environment,
certain types of homes may attract higher prices. For example, in
Piedmont, charming older homes in the center of town are in high demand,
and sell for much more than newer ranchers on the edge of town. This
accounts for the difference in price between the houses mentioned above
that sold for $712.16 and $484.18 per square foot.
The most
accurate way to determine the estimated selling price for a property is
to compare all the attributes of that property with similar properties
that have just sold, not just the price per square foot. Features like
lot size and utility, the view, the location and the quality of the
finishes all have an effect on value.
THE CLOSING: The
comparative approach to value is more subjective, but makes up for the
shortcomings of relying solely on price per square foot.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home
Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle
Books.
Copyright Dian Hymer |
