A common error when calculating the value of a home is to take the price per square foot of a comparable home sale and multiply it by the square feet of your home. This is a flawed method that will leave you, your buyers and your listings with an overpriced assumption.In real estate appraising, there is more to it than the price per square foot. For instance, both the value of the lot and the fact that there is a home itself (inherent value) are factors. There are other attributes, as well, included in the price per square foot of comparable homes.
If this makes you wary, then ask yourself this: If your home is larger, does that make the lot worth more? If the home is larger, is its garage worth more even if both are the same size?
Here’s the way the price per square foot is approached by an appraiser. If your “comps” (comparable home sales) were sold within the last six months and are of close proximity, then an adjustment is made to the features of the comps that are either superior or inferior.
For each comp’s feature that is superior to your house’s, there is a negative adjustment to your sales price. For each comp’s feature that is inferior, there is a positive adjustment to your sales price. Homes are like diamonds—while two could have the same amount of carats, it is the features and nuances that make one worth more or less than the other.
Disparities in square footage are typically only calculated after there is a 100-square-foot difference between your home and a comp. In most cases, that difference is only given between $35 and $45 per square foot. So if your home has 200 extra square feet, it is only given roughly $7,000 toward its appraised value. Below is an example.
|Square Feet||Sold Price||PPSQ Feet||Disparity||Added Value||Appraised Value|
|1,200||N/A||?||200 sq. ft.|
(1,200 – 1,000)
|$35 x 200sq. ft. = $7,000||$107,000|
|Neighbor’s House (The Comp)||1,000||$100,000||$100||0||$100,000|
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