Some folks might wonder whether analyzing a home's "price per square foot" is a good way to understand market value.
Let's take a look by analyzing a data set of relatively similar homes. I'm going to constrain things pretty tightly to try to have homes that we might theorize would have a relatively similar price per square foot.
Here's how I picked the data points...
- single family homes
- sold in the past year
- built between 2000 and 2010
- on less than an acre
- with a garage
- in the Peak View or Cub Run elementary school district
This resulted in (30) home sales in neighborhoods such as Barrington, Battlefield Estates, Crossroads Farm, Highland Park, Lakewood, etc.
The average "price per square foot" of these homes was $136.
But looking a bit more closely...
- (2) homes sold for less than $100/SF
- (10) homes sold for $100/SF - $120/SF
- (7) homes sold for $120/SF - $140/SF
- (5) homes sold for $140/SF - $160/SF
- (5) homes sold for $160/SF - $180/SF
- (1) home sold for more than $200/SF
So, basically, the price per square foot of these relatively similar homes is ALL OVER THE PLACE!
Let's take it a bit further to further illustrate this...
Next, I took the square footage of each home and multiplied it by the $136/SF average to point to what we'll call a projected sales price for each home if it had sold at that average price per square foot.
Then, I calculated the difference between the actual sales price and the projected sales price.
If each of these property sellers had tried to sell their homes at that projected sales price based on the average of $136 / SF...
- (14) of them would have been leaving money on the table because the average price per square foot would have caused them to sell at a lower price than a buyer actually paid for their house.
- (16) of them would have likely never sold their house because the average price per square foot would have caused them to list their home at a higher price than a buyer ended up being willing to pay for their house.
Oh, and the average difference between the actual sales price and this projected sales price?
$84,619
So -- can the "average price per square foot" of similar homes be a helpful metric for predicting the sales price of another similar home?
I'm going to go with "no" -- but I'm happy to be proven wrong.