A common way people like to compare the value of homes is by using the price per square foot metric. This is by taking data of sold properties, identifying the price per foot, and valuing another property based on that. The problem is that this only accurate if the houses are very similar. Of course, it cannot adjust for condition, lot quality/location, or neighborhood influences. Also, price per square foot tends to go down as house size gets bigger, so using it outside of a narrow range of sizes skews the data. In general, the lower price per square foot is correlated with higher square footage properties.
Instead, the recommend method is using the sales comparison approach – finding homes that are similar and making substitutions or corrections; for example, adding $15,000 for a nicely updated kitchen compared to a poor kitchen, or adjusting for small size and bedroom differences.
So, next time you’re analyzing a property for sale, consider minimizing the weight put on price per square foot, and instead look at the bigger picture.
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