This is from my Arizona Republic column:
Buyers will try to compare homes on a price-per-square-foot basis, but this is useful only for highly comparable homes – similar square footage on similar lots in similar neighborhoods.
Same subdivision is good. Same builder is better. Same exact floor plan is best.
The more differences there are between the homes, the less comparable they are and the less useful it is to compare their price per square foot.
There are a lot of reasons for this, the three most important being location, location and location.
The desirability of the underlying dirt is the overriding consideration. Even within the same subdivision, it matters where the lots are located, how big they are and what value-added features (or value-subtracting detractions) they are near.
We go on to consider some other factors that can influence the value of a home: single versus multi-story and the amount of variety in the shape of the exterior perimeter.
But wait. There’s more.
Ultimately, though, price per square foot can be misleading because it tends to treat all space equally.
The costliest space in a home is the kitchen. After that come the bathrooms and any space with running water. Mere bedrooms, dining rooms, family rooms, game rooms, dens, etc., are very cheap by comparison.
The exterior walls of the home are expensive because they have all the framing, the heavy insulation and the wiring. Interior walls are wood framing wrapped in sheetrock.
True value-added features matter a lot: Extra bathrooms, soft-water loops, security or home-theater pre-wiring, central vacuum systems, fireplaces, etc. Relatively unimproved extra space matters a lot less in pricing a home.
This is why 1,200-square-foot homes can sell for a lot more per square foot than 2,400-square-foot homes.
And, to think! — all that comes into play before we even get to the unzillowables…
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Jay T. says:
A perfect example — we listed a home in Power Ranch, a lovely “Master Planned Community” in the East Valley.
Our listing was a stunning Toll Brothers new build. Beautiful home. We suggested a list price of $595K. The seller said, “But the EXACT same floorplan in this section of the subdivision just sold for $680K! And our house is better than that one!”
Problem was, the “exact” same house was in the interior of the subdivision, on a cul-de-sac. Within walking distance of the clubhouse with all the amenities. A walking trail began two doors down. Our listing backed up to Power Road. It’s a four lane road and the only way out of the community. You could tell the color of the street light from our clients living room at night because the light turned their entire backyard and living room walls lovely shades of green, red and yellow. Backing up to Power Road was pretty much like having a freeway 40 feet from your back door.
Client was an investor, had never seen the home. She picked the lot because it was, “the cheapest one”. Well duh. The builders knew how Power Road would be. Anyone who’d actually driven into the community knew how it would be.
We couldn’t convince our client how bad it was (despite sending her a video, complete with truck noises, screaming traffic and the ever-changing colors of the living room walls). Three price reductions later, the listing expired unsold and the home still sits vacant as she can’t even find a renter that wants to live there.
September 26, 2006 — 12:49 pm
jf.sellsius says:
Gee, my house is not like an airline ticket, stock or a car after all. I guess Z will have to scrap the Kelly Blue Book comparison.
BTW Jay did you zestimate the 2 houses?
September 26, 2006 — 4:29 pm
Greg Swann says:
> We couldn’t convince our client how bad it was (despite sending her a video, complete with truck noises, screaming traffic and the ever-changing colors of the living room walls).
You did your best, though. Utterly amazing…
September 30, 2006 — 3:17 pm
Log Kits says:
I would agree with the dirt in the same subdivision changing as well depending on how the streets are laid out. I think that the corner lots are worth a whole lot more than a lot right by the main entrance of the subdivision.
September 4, 2008 — 12:53 pm