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Old 01-27-2010, 04:05 PM
 
Location: Tricoastal
353 posts, read 799,289 times
Reputation: 265

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To clarify, here in my area the price per sq foot is an important factor when you buy a home. Generally anything under 200 dollars per sq foot is considered a good buy and homes are selling for between 150 and 230 per sq foot (the hi-end, quartz in the bathroom type homes). I am looking at a home that is priced at $331 per sq foot and has 1500 sq feet. My agent says it's a good buy because generally "smaller homes sell for more per sq foot than large homes" (2500 sq feet plus). I must be an idiot because this does not make any sense to me. Why would I pay 500k (about 331 per sq foot) for a 1500 sq foot home when I can get a 2500 sq foot home probably for the same asking price, as the comps clearly show? When she pulled the comps, none of the comps have sold for above $204 a sq foot. I will admit that this house is on an oversize lot (.25 acres) for the area and is renovated (albeit in the 90s). However, it's SMALL (for the area), is a 3/2 and even the laundry is outside in the detached garage.

Now, if you compute $204 (the last sold comp per sq foot) times 1500 you get an asking price of $306k, which def. seems too low of a price for this property. However, I think $500k, or even $400k is too high (260 per sq foot).

What do you all think?
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Old 01-27-2010, 04:17 PM
 
Location: Barrington
63,919 posts, read 46,434,424 times
Reputation: 20674
Generally speaking, the larger a house is, in my area, the lower the price per square foot. Another interesting anomoly is that the price/ SF for a newer home is often less than the price/SF of an older home of compariable size.

Much of this is driven by location and the value of the land. Newer larger (Mc Mansions) tend to be built further out where land is less costly than
"in town" locations. There are also caps on appreciation of larger homes or those with substantial land that cannot be sub divided.

As an aside, price/SF is not used as a reliable benchmark for value in my area.
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Old 01-27-2010, 04:22 PM
 
Location: Columbia, SC
10,889 posts, read 21,841,699 times
Reputation: 10480
Yes, smaller homes normally sell for a higher price/sf compared to larger homes in the same neighborhood in my market. Of course there can be variables such as age/condition/upgrades, etc.
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Old 01-27-2010, 04:30 PM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,957 posts, read 22,218,225 times
Reputation: 6467
I rarely use the word never but................ Using only one measurement to determine value is NEVER a good idea. There are far too many variables to consider when valuating homes.

You should see the form that appraisers use (and brokers who perform broker price opinions) to determine value. We would all be much happier if we could just use one number divided by another one to come up with a value.
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Old 01-27-2010, 04:36 PM
 
Location: Boise, ID
8,046 posts, read 28,352,315 times
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There is a very good reason that smaller homes are higher $/sqft than larger homes.

Larger homes usually have proportionately more "easy to build" space. In other words, a larger percentage of the house is bedroom, dining, and living space, which are cheap to build.

The expensive rooms in a house are kitchens and bathrooms. Since every home has a kitchen, having a smaller house doesn't save you as much as you would think. By making the house smaller, you got rid of more of the cheaper space.

In other words, just to put some arbitrary numbers out there, a kitchen might cost $1000 a sq. ft. to build, while a living room might only cost $50 a square foot to build. By making the house smaller, you get rid of a lot more of the $50 than you do of the $1000, making the average higher. Same thing with bathrooms.

Also, even if the bathrooms and kitchen get smaller on the smaller house, some things can't be cut out. No matter how small the house, you are still going to have plumbing for sinks and bathtubs, so those become a larger percentage of your cost, which drives up the price/sq.ft.

Make sense?


If there is one house that, as you say, is $500k for 1500 sq.ft (by the way, OUCH!), and another for $500k for 2500 sq.ft., you have to ask #1, why the difference? Better location, more amenities, more upgrades? They aren't comps, but why not? And if there is no substantial difference, then the answer to your question is that the house is clearly overpriced and you should NOT pay that much.

But if you are basing "comps" purely on $/sq.ft, you are going about the process incorrectly. Many things factor in. If the house has lots of upgrades and is in a nicer area, it is worth more money, in general.

We build houses, and people call us up all the time asking how much per square foot we charge to build a house. We laugh and tell them it doesn't work that way. Depending on what they put in the house, and where, we can build them a 1500 sq.ft house for $130k or we can build them a 1500 sq.ft. house for $500k.
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Old 01-27-2010, 06:31 PM
 
845 posts, read 2,318,211 times
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Subtract what the lot is worth, then compute cost PSF.
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Old 01-27-2010, 07:04 PM
 
Location: NE Atlanta suburbs
472 posts, read 852,104 times
Reputation: 217
Also, a two story house, which likely has more square footage, usually costs less per square foot than a one level home. The second story is usually a cheaper build, going straight up, rather than creating a bigger footprint for that same footage on a one level home.
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Old 01-27-2010, 07:07 PM
 
Location: Lead/Deadwood, SD
948 posts, read 2,778,883 times
Reputation: 872
When comparing similar quality home price per square foot on the smaller one tends to run higher for a few basic reasons - they will all have the basic utilities that will have a minimum cost to meet code regardless of size and most every home will have at least one bath and one kitchen one electric panel a heat system etc. plus if it is on a city lot there will be a minimum value there -
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Old 01-27-2010, 08:32 PM
 
Location: Soon to be Dubuque, IA
18 posts, read 69,394 times
Reputation: 41
Yes, smaller homes are always more expensive for what you get. If you look at homes which are 10-15% below the median price and compare them with homes that are 10-15% above the median, you get a lot more for your money (better area, much larger house, etc.) with the more expensive house. The cost to build is a factor for new homes, but for older homes it's all about supply and demand. Demand is always higher for entry level homes.
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Old 01-27-2010, 09:11 PM
 
28,455 posts, read 84,914,994 times
Reputation: 18723
I generally like to remind folks that it is AWFULLY tough to find a "good deal" by buying 'tires by the pound'. Those big rubber things that go round & round on a dump truck won't do you much good on a Corvette.

When you buy a 3 bedroom 2 bath home on a large lot it is very hard to say your purchase compares favorably to a 6 bedroom 4 bath home crammed onto a tiny lot.

The most reliable method of determining a fair price to agree on for a house is to find a recently closed sale that is MOST SIMILAR to the one you are considering. If there is a wide range of lot sizes and much variablity in the kinds of housing that makes up your town the task will be MUCH trickier. The ultimate decision lies with you and you should NOT make an offer than you do not feel is supported by data, but neither should you reject the advise of your agent IF they can supply data to back up their assertion that the price for the TOTAL PACKAGE (land, home, renovations/condition) is appropriate. FURTHER in situations where there is a wide range between home that have been updated and those that have not it is CRITICALLY IMPORTANT that you do the extra research to determine how likely it is that other homes will be updated to at least the degree that yours in over the course of your likely ownership -- the mix of the neighborhood may be such that famlies with young kids that appreciate the fine schools and other features will live in the area for a long time and upgrade their home OR conversely the area may be "past its prime" and the reason your place was 'fixed up' was becuase some other sucker was unaware of that...
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