Don't Use Price Per Square Foot to Value Homes

Price per square foot is unreliable to value homes. It is without question one of the most quoted "sources" when home values are discussed but it is so flawed that on any level, it cannot stand even the softest of challenges. In fact, price per square foot is so unreliable that it makes  automatedvaluation models (think Zestimates) look reliable.

The idea that something as unique as a home can be "valued" using a method with at least 10 major variables is idiotic. Yet and still, price per square foot is bandied about as some type of cornerstone when home prices are talked about. It falls cleanly into the "garbage in, garbage out" research idiom as nothing in the data used to ascertain that "value" is credible. The typical real estate agent doesn't even understand how to measure a home. This brief video sums it up clearly - with examples of just how dubious and contradictory the data used is.

Consider just a few of the data sources and think about how reliable / consistent they are:

• tax records
• living area calculations
• design
• quality and workmanship
• lot price
• lot features
• external factors
• locational appeal
• home condition
• buyer circumstances
• seller circumstances
• economic conditions
• incentives
• materials and labor costs
• added upgrades
• distressed sales
• influence of new home construction
• zoning changes
• and 100+ other variables specific to each home

Like so many other things, the public wants simple talking points and apparently price per square foot meets that criteria. But please understand, this is a completely unreliable way to evaluate a home - as idiotic as considering what Case-Shiller puts out when they talk about the housing market. All real estate conclusions are suspect unless they are hyper local and focused. And that's what we do.

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• home value (4)
• price per square foot (1)