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Cost Per Square Foot is NOT a Reliable Indicator of Home Value

The analytical thought process to compare properties on a cost per square foot basis may appear correct in theory, but in all actuality, it is not a reliable gauge.

Many factors come into play when it comes to evaluating a property’s worth; with location being the greatest consideration.

For example, think of a 2,500 square foot home that is in the most sought after neighborhood in town. Then, think of that very same house as being located in a less desirable location.

They would be priced very differently, thus making the cost per square foot on each of these homes considerably mismatched, wouldn’t it?

That thought also holds true for  similar sized homes that are located across the street from one another. One side of the street may be more desirable than the other side for various reasons, including water frontage on the plus side, or thruway frontage as a detriment.

It’s not really about the size of the dwelling, it’s about the land cost where it is located, as well as the quality of material, finishes, and workmanship.

In our area of Fairfield County, Connecticut, land costs equate to roughly about 1/3 of the total value of the home. So land costs that were very different  would affect the overall cost per square foot.

As a note, a half acre of land is not worth twice as much as a quarter acre, even if both properties abut each other. In that case, value would have to take into consideration whether the property was sub-dividable and could produce another lot. If that was the case, the cost of subdividing the parcel would also have to be considered. If the parcel was not able to be separated,  there would be an upwards adjustment to the larger lot, but it wouldn’t be worth twice as much. The cost per square foot doesn’t work on land either. This calculation is better left to builders constructing new homes as a way of pricing the actual “build” of their product, and not as a re-sale indicator.

It is always best to compare similar properties whenever possible and adjust pricing as needed.

Judy Szablak