Price per Square Foot... means nothing.
Updated: Mar 10, 2021
It's a price metric that is thrown around by homeowners and even some agents, but the reality is, it's about as descriptive as viewing a painting from a mile away.
As this custom home builder says the price per square foot can vary wildly even in new construction, but let's take a closer look at some examples of why this metric fails at every level to be informative (with one, rare, exception).
The following homes all sold within 59 days of each other (08/31/20 - 10/29/20), for between $295.14-297.60 per square foot (0.83% variance).
Property 1 - a 4,057 sf log home in Louisa County with 1.14 acres on Lake Anna that sold for $1,200,000. $295.79/sf.
Property 2 - a 1,902 sf ranch home in Prince Edward County with 177.69 acres whose interior is partially gutted sold for $565,000. $297.60/sf
Property 3 - a 5,588 sf historic victorian home in The Fan with custom marble floors and high end finishes throughout, six bedrooms and 4 baths, that sold for $1,649,950. $295.27/sf.
Property 4 - an 864 sf ranch in Bellvue with two bedrooms and one bath built-in 1961 that sold for $255,000. $295.14/sf.
Do we see the problem? Even if we remove the fact that the agent on the first listing inflated the above grade square footage by 1,844 sf, we still have 3 properties that are grossly different with nearly identical $/sf. Why?
A home is a lot of different pieces put together. Above is a graphic of some of the parts of a home and their percentage part of the whole. This of course doesn't begin to take into consideration the condition of the home, the quality level of the materials, or the location, location, location.
Price per square foot really only works as a valuation tool where everything is identical. For example new construction condos - if the same builder is using the same materials, at the same time, and building identical units, THEN price per square foot is relevant... because there is no land to worry about (condominium) and the location is the same (unless you own a detached/semi-detached/attached unit). See, even here, the metric has exceptions, which again explains why it is such a poor tool to use in estimating your home value.
A real estate professional's job is to look deeper than the surface "price/sf" to all of the factors below that it is representing. So, if someone offers to buy your house and says "Homes in your neighborhood are selling for $X/sf..." be careful. There is a lot more to t that number below the surface.