What "Price Per Square Foot" Means:

Pricing a home by using a per square foot (psf) value is nothing more than dividing the total value of the property by the total air conditioned square feet of the home.  You cannot include the garage or add-on space if they are not heated, air-conditioned, and used as living space.  Technically, you are not supposed to include the square footage in an upstairs garage apartment or attached living quarters if you have to walk through an unair-conditioned garage or breezeway to get to them.  The price psf also includes the land the home is sitting on. 

Using the price per square foot method of valuing a home can be risky.  It can result in a severely over or under-priced home, both of which will hurt your seller.  It requires a lot of thought, the ability to reason and extrapolate, and most importantly, a thorough knowledge of the homes that have already sold in the area.  This is why we make it a priority to preview the listed homes in our areas of specialty (Harris & Fort Bend Counties) every week.  How can we possibly price our homes if we don't see what the competition is offering?

Although pricing on a psf basis is an easy concept to understand, it can be wrought with traps, especially in custom home areas where no two are alike.  And if the custom homes are also on acreage, it becomes even more difficult.  Not only are no two custom homes alike, it is rare to find two custom home lots that are exactly alike.  Even lots tend to have their own subtle differences.  This is where the ability to extrapolate is critical. 

A realtor told me that homes in my neighborhood are selling for $200 per square foot. Why did my appraisal come in at a lower price per square foot?

The method of deriving a value by an area price per square foot is not considered to be the most reliable valuation technique. This is probably the most common misconception made by homebuyers, sellers, realtors and any one else who is trying to determine a home's appraisal value without the help of an expert. To begin with, this method is oversimplified. It is a ratio that only considers the relationship between size and sales price. Don't we all agree that our homes are much more dynamic than that? This method does not consider that your neighbor's home that sold for $100 per square foot also had a pool and backed a conservation area. Of course the neighbor's home is going to reflect a higher price per square foot. It is an appraiser's objective to select at least three homes that are as similar as possible to your own and then extract the differences in an approved method that will result in a logical conclusion to an estimated value.

Pre-Sale Decisions

Before someone decides to sell a home, there are several decisions to be made. First and foremost: ''How much should it sell for?'' But first there may be other equally important questions to ask: ''Would it be better to paint the entire house first?'' ''Should I put in that third bathroom?'' ''Should I complete my kitchen remodel?'' Many things which we do to our houses have an effect on their value. Unfortunately, not all of them have an equal effect. While a kitchen remodel may improve the appeal of a home, it may not add nearly enough to the value to justify the expense.

Appraisers can step in and help make these decisions. Unlike a Realtor, an appraiser has no vested interest in what amount the house sells for. His or Her fee is based on his or her efforts, not a percentage of the sales price. So seeking a professional appraisal can often help homeowners make the best decisions on investing in their homes and setting a fair sales price.

• Price per square foot is a greatly exaggerated tool that Real Estate agents use.
  Please be VERY careful regarding playing with the price per square foot. That can really skew prices and is NOT a valid way to price or appraise a property!!!! Realtors and people that don't understand Appraisal theories and practices use that - not appraisers. Dollar per square foot is not a valid measure of value. That measurement is used by realtors more often than appraisers. There are too many factors that go into the total price that can skew the price per foot. Pools, larger lots, workshops, etc. It is not wise to base decisions on a total price per foot.
• In my experience I've only seen Price per Square Foot used to support a predetermined conclusion or a salesperson's agenda. It sounds like a valid comparison, so when someone wants to illustrate that a house is a good value it's a convenient number to produce. However, that same person will likely ignore the Price per Square Foot if it doesn't support their case. Hint: If you have a Realtor relying on price per square foot.... find a different Realtor that knows more about the Real Estate business!
• It is not possible to take a price per sq ft and multiply it to come up with a value. A price per sq ft not only includes your house, it includes your lot size, garage, pools, decks whatever else. Price per square foot is a number that can only be arrived at, not multiplied.