Homes come in different styles, are built with different materials, come with different amenities, and exist in different locations. Each of these factors has a profound effect on a home’s value and has nothing to do with size.  Price per square foot (sf) also doesn’t take renovations into account. A completely refurbished kitchen will add value to a home without changing the overall square footage of the property. Therefore, two homes may be the exact same size, but can look completely different inside.

Price per square foot is determined by the Sale Price divided by the Gross Living Area only. It does not take into account any additional square foot living space in basements, or added amenities on the property, although that or those may be a component of the Price.   This has been and continues to be a problem for the AVM* services found on many real estate websites, like Zillow.  AVMs are provided by computers/software, which primarily on numbers (sf) to establish value missing things like a remodeled  chef’s kitchen, the recycling plant next door, the basement rec room with home theater and billiards room.

Price per square foot really only works in conforming tightly located neighborhoods with similar homes, on similar size lots. There are far too many variables in real property to make Price per square foot a reliable metric. Unfortunately, far too many Real Estate Agents believe it to be, and base list prices on it resulting in overpricing or under-pricing the property.  The Professional Career Center offers continuing education courses covering property valuation for real estate agents and appraisers.

*Automated valuation model (AVM) is the name given to a service that can provide real estate property valuations using mathematical modelling combined with a database.  Most AVMs calculate a property’s value at a specific point in time by analyzing values of comparable properties.