How is the price per square foot determined? Why are there huge fluctuations in price in my zip code?

Asked by Carolyn Kreid, Denver, CO Wed Oct 14, 2009

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11
Ethan Besser, Agent, Englewood, CO
Wed Oct 14, 2009
Hi Carolyn,



It depends on what your zip code is. Price per square foot can be affected by the condition of the house (in other words whether it is remodeled or not). Also, the number of foreclosures can affect the price as the price per square foot will be less because the price of the home is less. Call me and I can give you information specific to the neighborhoood that you are interested in.



Thank you, 



Ethan Besser 

303-856-8980 

Keller Williams DTC
1 vote
Jennifer Apel, Agent, Denver, CO
Thu Mar 28, 2013
Hello Carolyn,

If you are speaking of Berkeley, which includes zip codes 80211 and 80212, then you are primarily talking about comparing vintage housing. Price per square foot is never used for comparison with vintage housing, as there are too many variables that affect it, particularly in neighborhoods with such a wide variety of homes sizes. The average PSF for a 1800 sqft 2-story Victorian will be vastly lower than that of a 850 sqft Bungalow, and in nearly every Northwest Denver neighborhood, they can exist right next to eachother. PSF does not take into account a basement, basement finish, quality of above grade finish, system updates, a garage, lot size... you get the picture. You can see why Brokers who specialize in vintage housing rely on comparable sales only, not PSF, to determine home values. Appraisers don't use PSF to determine values of vintage homes either.

If you would like a neighborhood specialist to assess the value your home, I would be a good choice. No one does more resale business in 80211 or 80212 than I do, and I would be happy to come by.
0 votes
Ron Rovtar, Agent, Boulder, CO
Wed Oct 24, 2012
Hi Carolyn: Price per square foot figures can be a little confusing. Factors like the quality of a home, the finishes, recent updates, general maintenance and repairs all contribute to the "price per square foot" of a home. Put more succinctly, maintained homes with more upgrades and better finishes sell for high prices per square foot, even when compared to inferior homes of similar construction in the same area.

But comparisons are harder when you consider that some square footage is worth more than other square footage. Finished square footage is worth more than unfinished, which is usually basement square footage. Above ground finished square footage is generally worth more than finished square footage below grade, even if the underground square footage is finished very nicely.

Taken together, these considerations can be confusing. But, generally it is best to start your considerations with the square footage figures and work from there.

And here is a hint from appraisers and real estate agents who do this every day. To determine a good market price for a particular house, you should find the best recently sold comparable homes in the nearby area. Then make your adjustments to the comparable homes. In other words, ask yourself what those homes would be worth if they were more like the target home. If there is any sense to the pricing in the neighborhood, you will start to see patterns emerge, making it much easier to figure out the probable market value of the target home.

Kind regards,
Ron Rovtar
Prudential Real Estate of the Rockies
303.981.1617
ron@rovtar.com
http://www.rovtar.com
0 votes
Robert McGui…, Agent, Denver, CO
Tue Oct 9, 2012
Hi Carolyn,

Good question. On Trulia, Zillow and the other websites, they compile all of the prices and square feet of all homes within a certain zip code or section of a community and divide it by the amount of homes to come up with a price per square foot. It is an inexact science to say the least. There needs to be an apples to apples approach as to specific areas, style, condition and other factors in order for the price per square foot to have any relevance at all. Otherwise there are several other factors that we as real estate professionals use to establish value of a home. Instead of taking the shortcuts with these general information websites,

the reason for the big fluctuation in price is that there arw homes in varying sizes, conditions, styles, and locations within a zip code. Sometimes it is even block by block in older communities. Foreclosures and short sales also throw off the consistency in pricing in one block as well as pricing in a zip code. I always suggest consulting with a good broker who knows the market and will be willing to give you a free market analysis of your particular home. I am always glad to do so whether it is for a resale, a refinance request, or just for knowledge to keep abreast of your neighborhood activity. Hope this post helps. Let me know if I can be of further assistance.

Robert McGuire ASR
Broker/Consultant
Your Castle Real Estate
Direct - 303-669-1246
http://about.me/robertmcguire33
0 votes
Leslie Monaco, Agent, Greenwood Village, CO
Wed Mar 17, 2010
Carolyn,

I agree with Eileen. Price per Square Footage is not a very good indicator of the home's value espcially when you look at it as an average for a neighborhood. Another thing to consider is that when you are looking at the price per square footage amount, it does not take into account the basement finished square footage. Only the above ground sqft is calculated. This can throw off the number greatly.

Leslie Heldenbrand-Monaco
The Kentwood Company
0 votes
Dallas Texas, Agent, Dallas, TN
Thu Oct 15, 2009
What a great question:

Price per sq. ft. is determine by room count UNDER HVAC system, garage, porch, enclosed space is not counted.

Many areas of community of deed restrictions of homes must from $250K to $400K and certain sq. ft. built. When selling a home ANY home sold in past 6 months is compared to yours based on sq. ft., room count, 3 to 5 homes are taken inconsideration for appraisal.

Homes back up to a view example golf course, water front, larger lot is considered high value they are premium lots vs. other homes in area.

Listing agent can detail all particulars for you


National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
Follow me on Twitter: http://twitter.com/Lynn911
Lynn911

http://www.lynn911.com
0 votes
Eileen Forre…, Agent, Lakewood, CO
Thu Oct 15, 2009
Hi Carolyn.
Price per square is determined by dividing the square feet by the list price. In the 14 years I have sold real estate I have never allowed the price per square feet to sway my buyers. As you mentioned the price per square can vary significantly from one neighborhood to another. For example, Wash Park area gets one of the highest PSF because of the location and desirability. If I can help with anymore questions feel free to call
Thanks
Eileen Forrest
Remax
0 votes
Keith Sorem, Agent, Glendale, CA
Thu Oct 15, 2009
Carolyn
You have some very good answers here. Mine is a little simpler, but maybe it will be helpful.

The price per square foot is based on the living square area. Typically that means area that is permitted for living. When a home is built the builder has the city sign off on his building permit, which contains the square area.

A number of things can happen to distort the true square area (as noted in previous posts). Additional reasons are that there can be clerical errors. The Building and Safety Office has the permits. When the work is completed copies are sent to the County Assessor's office. In most MLS systems the MLS buys data from either a third party or the County Assessor's office directly. In my MLS I would estimate that there are errors in about 20% of the records.

I think your real answer though lies in the differences between the properties. In tract housing, where the homes were all built about the same time, and buyers had a choice of designs A, B or D, comparing values by square foot presents no problems. In areas where the homes are not all the same, there are different variables that affect value:
Age of property
Real age ( when it was last updated or remodeled)
The size of the lot
The lay of the land (is it flat, on a hill, has a view, etc.)

Also, the rule of thumb is that the larger the home, the lower the value per square foot. The smaller the home, the higher the cost per square foot.

The proportion of "improvement" or the buildings, to the land. A large lot with a small property will have a higher value per square foot if it is surrounded by similar lots with larger homes. A small lot with a large home may have a lower value.

Early in my career I learned from some veterans that in the world of selling real estate, there is a range of value in which a property will sell. Regardless of square footage, it is the sum total of all the variables cause a buyer to say "wow, that is a great home for a fair price". The value per square foot is helpful, but not an absolute determinant of home value. If you are thinking of putting your home on the market, you want your Realtor to show you comparable homes, your competition, and evaluate them based on the features that buyers will think have value.

I suggest to may sellers that we go look at homes that will be their competition and do an apples to apples comparison. When my sellers see what I see, then we can all start on the same page. For example, if we pick six homes to review, and when my seller's home hits the market, one of those listings lowers their price, then they know that that seller decided that in order to sell they had to lower their price. That very well may force us to lower ours.

Good luck.
0 votes
Janine Kowal…, Agent, Jensen Beach, FL
Thu Oct 15, 2009
Price per sq foot is determined by houses that have sold dividing the price by the sq footage.
if a house sold for 100K and was 1000 sq ft the price per sq ft would $100 per sq ft.

There are fluctuations in price as the sale prices depend on the condition of the home;
Foreclosures can be destroyed and sold cheap.
Short sales, where the value is less than what is owed to the bank,are sold for less, thereby a devaluation of the surrounding properties occurs.

Regular Sellers like yourself are paying the price.

Hopefully the market will steady itself in the next year or so and the prices will start to level off.
0 votes
bobby verenna, Agent, Tucson, AZ
Wed Oct 14, 2009
Carolyn,
Price per square foot (psf) is a simple calculation:
price of home divided by square feet eg. $250000/2000sqft = $125 psf

The complexity is in how the square footage is calculated. The local MLS (Metrolist) defines the square footage parameters as follows:

In order to correctly report square footage, the following three required square footage fields must be accurately calculated and entered :
1. Square Feet
2. Finished Sq Ft Total
3. Total Sq Ft.
Basement square footage is prohibited from inclusion in the Square Feet field, including standard and traditional basements, cellars, walk-outs and garden levels.
Square Footage Fields Defined:
1. Square Feet: A required field that includes all partially or completely above grade square footage. This includes the finished and unfinished square footage of the main, upper and lower levels. Basement square footage (including walk-out and garden levels) is prohibited from inclusion in the Square Feet field.
2. Total Square Feet (Total Sq Ft): A required MLS field that represents the finished and unfinished square footage of all levels, including the main, upper, lower and basement.
3. Finished Square Feet (Finished Sq Ft Total): A required MLS field that represents all finished main, upper, lower and basement square footage.
4. Main Level: The level at front grade or partially above front grade.
5. Upper Level: All levels above main level (e.g., 2nd floor, 3rd floor, etc.).
6. Lower Level: A level below main level that includes partially below grade living space (e.g., bi-level, tri-level, 4-level and raised ranch).
7. Basement: The lowest level of a building that rests on a below grade foundation (e.g., standard, traditional, cellar, walk-out and garden level). Basement square footage is prohibited from inclusion in the Square Feet field.

The large fluctuations are typically a combination of two factors:
1. square footage numbers being mis-represented
2. in the Highlands, Berkeley, West Highlands, Regis, etc areas there is a huge variety of homes. many have been completely gutted, remodeled with modern amenities, additions, etc.

I have lived and worked in those neighborhoods for the past 12 years. Working with an agent that is intimately familiar with the peculiarities of those neighborhoods should be able to shed some light on the varying values in your zip code, but more specifically your neighborhood.

Let me know how I can help you with any/all of this!

bobby verenna
keller williams realty, dtc
303.995.8786
bobby@bikeracingrealtor.com
0 votes
Tim Klein, Agent, Littleton, CO
Wed Oct 14, 2009
Carolyn,
It's the asking price divided by the livable square feet above ground. Though some Realtors code the space in error, the usual reason for the differences are due to walkout lower levels and tri-levels though there aren't many of either in Berkeley. Let me know if I can help.

Tim Klein
Broker
Metro Brokers - The Realty Werks
303.973.7600
0 votes
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