Pricing Property Using Square Footage of Living Area

By Victor Normand
Published: November 2013

images

Square Footage

Pricing an individual property using only an average square footage price of recent sales is never advised.  A price per square foot of living area alone often neglects to take into consideration many things like location of the property, how square footage is actually calculated and distributed, or the condition of the home.  However, everyone uses square footage pricing; buyers, sellers, real estate agents, appraisers, and local assessors to approximate the value of property.

At the end of the day, it is the marketplace that determines what the sale price of a home is, so looking at recent comparable sales information is advised.  The most efficient way to transfer the actual sale price of a property to a current one on the market is to begin with the sale price per square foot and adjust from there.  Those adjustments need to include:

  • Location – the same neighborhood in the same town
  • Age  – new, nearly new, mid-century, pre-war, antique
  • Style – colonial, cape, ranch, contemporary
  • Condition – depreciation or replacement attributes

The chart below shows the average sale price per square foot in the past year for many of the communities in our area.  The current list price for single family homes on the market is also shown along with the ratio of current list price to actual sale price for the previous year.  While this information has limited utility in pricing an individual home, it does provide some indication of where the price should be.

blog chart
These aggregated numbers are useful in other ways.  They provide information useful in relating towns to one another in terms of overall home value.  For the towns listed above, properties in Concord list for higher prices than those in the other communities.   Also, the relationship between listing prices and home sales for the previous year help to provide a picture of where home sellers and their real estate agents think the market is headed.  For the most part, sellers expect the market to continue to be strong and they are pricing homes accordingly.

Sometimes the numbers are difficult to interpret.  Although the pricing in Harvard and Concord seem similarly aggressive at 133% of last year’s sale prices, interpretation of this ratio might be different.  In one instance, the town of Concord with its greater proximity to the Boston Market, which is very strong, and the low absorption rate of three months (half of what is generally considered a balance market) seems to reflect a strong forward looking market, whereas higher expected prices in Harvard may have more to do with an extended period of depressed prices and a market trying to regain its place relative to other nearby communities.

So, if you are going to use square footage as one factor in pricing a home, start with accurate measurements.  Although there is no “right” way to determine correct square footage, here are some guidelines as established by ANSI (the American National Standards Institute):

  • Measurements are taken from the outside of the building and include the thickness of interior walls, closets and hallways
  • Below grade spaces like basements, even when finished should not be counted as living area, though an adjustment should be made for that finished space
  • Any rooms or accessory spaces not directly accessible from the main house cannot be counted
  • Enclosed porches can only be counted if they are heated using the main heating source or other permanent systems
  • Finished attic space can only be counted where the ceiling height is at least seven feet

Finally, after you have taken a stab at pricing your home or a home you would like to buy, try taking advantage of a Resident Expertsmto put a finer point on your work.