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Why price per foot is not the best indicator of real estate value

In today’s current Los Angeles real estate climate with a shortage of listing inventory, it is difficult for Realtors® to be able to guide their clients as to which price a home might ultimately sell. There are numerous components to the market value equation and price per square foot is just one.  The calculation is simple. Divide the price of the home by the square footage.  This is a poor indicator of a home’s true value for several reasons:

Location: Obviously a home on a busy street or next to industrial, or multifamily, will sell for less per square foot than a home just several blocks away in a conforming single family neighborhood.

Condition, Age and Amenities: If there are two similar homes but one boasts updated kitchen and baths, which do you think will sell at a higher price per square foot? There are certain architectural styles which are highly sought after, such as Spanish, mid-century modern,  etc. New construction will also sell at a higher price per square foot than a 20 year old home.

Lot Size: This is a bit trickier. The gross lot size is not as important as the size of the level pad. A large level lot studded with protected trees  may not be as desirable as a home on a smaller more usable lot.

Floorplan: Not all square footage is created equal. Tandem bedrooms, square footage carved out of attic space, basements and poor additions will not add the same value as square footage belonging to a conforming floorplan with a good flow.

Home Size: Unless we are looking at luxury real estate, typically smaller homes sell at a higher price per square foot than larger homes. If you think about this it makes sense. Large or small, each home is cited on a lot and each one has a kitchen (high cost room).

Unless you are comparing apples to apples, price per square foot only provides a very loose comparison.  This is why most online home evaluations often vary by 20% or even more.  Price per square foot provides average or median ranges to enable all of us to understand market trends.

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