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  • Writer's pictureJesse Ledbetter

Lenders, GSE's and appraisers don't use Price/SF

Why do agents? In commercial real estate, price per square foot is a significant metric, but in residential real estate, it isn't used. If I were to value a home based on price per square foot I would be laughed out of the lender, turned in to the state board by Fannie Mae and my board could take away my license for incompetence. So, why do agents use it?

In previous blogs we've discussed the weakness of price per square foot - its akin to pricing a home $/pound... sure you could do it, but why would you? There are 20+ factors wrapped up in a square foot (condition, quality, functional utility, upgrades above the rest of the square footage, location, view, etc). This is why appraisers, lenders and the secondary market have adopted the principle of bracketing to arrive at credible valuation.

Bracketing is simply the act of selecting comparables that match OR bracket all of the features of the subject home. Does the subject have 2 and 1/2 baths? Find a comparable with 2 1/2 OR two comparables with 2 and 3 baths and adjust according to the market data. The same follows for acreage, square footage, basements, as well as more qualitative elements like location, condition and quality.

If your agent attempts to price your home based on $/sf, say, "That's great, but can I see the comps you used," and make sure that every factor of your home is found within that range. If not, you're likely under/overpriced.

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