Only to the lender. I should qualify that a bit. In a true apples to apples neighborhood in the suberbs, the price per square foot (PSF) of the comparable sold homes matter. Especially to the lender who will be lending on it. They need metrics like this in order to explain to shareholders why they lent the money.
Builders use price per square foot for an area to help project their potential profits compared to their cost to build.
Investors can screen neighborhoods for homes that are significantly below the average price per square foot for the neighborhood.
For you and I. We need to be more specific. One way is a comparative market analysis or CMA.
There is one certainy though, to determine the value of a property, you can’t simply take the square footage and multiply it by the area’s PSF or even the comparable home’s PSF. It’s just not going to get you where you want to go.
As an example, I once met a man that built a massive addition on the back of his house. He added over 2000 square feet (SF) to his home. He then did the calculation; my home is 3400SF X $200 PSF = $680,000. Unfortunately, he simply added massive rooms without any appeal to them. He added only one jack and jill style bathroom for the 2000 SF he added. That was supposed to be a shared master bath. Needless to say, buyers didn’t see it and had a 100 other options for under $680,000 that were superior.
He ended up selling for $385,000 or $113 per SF. For him, using price per square foot to determine his value sent him down the wrong path by more than 40%.
Great article Spenser. Thanks for the info!