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The Deadly Price-per-Square-Foot Seller Trap

Of all the conversations I have with home sellers during a consultation, the hands-down most important one is always about price.  It’s no wonder.  I’ve never met a seller with equity in their home who was interested in giving that equity away by selling their home for less than it was really worth.

Most sellers are pretty knowledgeable when it comes to properties that are selling in their own neighborhood.  With the online tools available today, I rarely run into a seller who has not at least compared their home to “Active” and “Sold” properties.  Usually the basis of their comparison is heavily weighted on  “Price-per-Square-Foot”.  But, there is a right way and a wrong way to use this indicator to determine asking price and sale price.

Let’s take a look at four different homes that sold in the same neighborhood during the same time period:

Fig. 1
  1. 18 Mantauk Point PlSqft = 1992 | Price Per Square Foot = $186
  2. 5671 Los Pueblos WaySqft = 2570 | Price Per Square Foot = $159
  3. 4 Shadmoor PlSqft = 1708 | Price Per Square Foot = $198
  4. 53 Seatuck CtSqft = 2132 | Price Per Square Foot = $164

So why is it that the price-per-square-foot decreases as the size of the home increases?

It’s a function of the neighborhood price floor and price ceiling.  In the particular neighborhood above, a buyer cannot buy a home for much less than $330,000 (the neighborhood floor).  Conversely, buyers are not currently willing to pay much more than $430,000 (the neighborhood ceiling).  Even if they were willing, appraisals would be difficult to come by.

The neighborhood floor exerts an upward pressure on the price-per-square-foot as the total square footage of the home decreases.  In other words, buyers are willing to buy a smaller home at a premium price-per-square-foot in order to live in the neighborhood.  On the opposite end, the neighborhood ceiling exerts a downward pressure on the price-per-square-foot as the total square footage of the home increases.  In other words, buyers are generally resistant to paying an unprecedentedly high price or “setting a record price” in any neighborhood.

In the above example (Fig.1), this is why 5671 Los Pueblos Way did not sell for $198 x 2570 square feet or $508,860 (way over the neighborhood’s highest price).  This is also why 4 Shadmoor Pl did not sell for $159 x 1708 square feet or $271,572 (well below the lowest recent sale price).

The bottom line:

Price per square foot should be used only with homes of similar square footage and then only as an initial guide.  It is only one factor along with condition, upgrades, finish-work, floor-plan, landscaping, market trajectory, timing, etc.  These factors all need to be considered in a comprehensive way to determine the asking price as well as the range within which the home will sell when it is properly marketed.

If you are thinking of selling your home in the next year or so, contact us today for a confidential consultation.  We’re here to help.

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