The sale price per square foot (PPSF) can be a great home valuation tool when used properly, but it is just one limited point of reference. When does it fall short, and when is it most useful?

You need to compare apples to apples.

If you are comparing homes that are VERY similar in square footage, location, property size, and condition, you would expect your property to be very close to the PPSF of the others, and this assessment is very useful. For example, when you are comparing condos in the same complex with the same views and amenities, new construction homes in similar locations, and houses that are very much alike in scope, then PPSF can be an excellent tool for comparing value. Some experts say that only properties within 10% of the size of your subject home should be included when comparing PPSF, and others include properties within 20-25% of the size. It is also important that the included sales are recent enough to represent the current market conditions.

The more variables among the compared properties, the less meaningful PPSF will be.

When there are many differing variables among the properties, a wide variation in the PPSF should be expected, and using this approach is not very helpful. Some examples of this would be homes where the parcel size is vastly different, the degree of landscaping or outdoor amenities varies widely, such as having an outdoor kitchen, pool, or tennis court, condos where some have great upper-floor views and others do not, or when one home is an antique and another is a new construction.

Homes on the beach can be difficult to compare with PPSF as well. There are so many variables in addition to the scope and condition of the house such as where on the beach the home is located, how deep the beach is, what the views are, where the jetties are, the storm damage history, the cost of flood insurance, etc. All these considerations can cause the PPSF to be limited in its usefulness.

When you use PPSF, there are a few ways to look at it

You can use PPSF in a few different ways. You can look at the range, the median and average, and look at a specific number.

It is useful to look at the range of PPSF of comparable homes that have sold in the same area. You can view it as a continuum and make a determination of where your property falls within the range based on how your property compares to the others. The median is the midpoint where half of the comparable sales are above, and half are below. Your property may warrant being above, below or the same as the median PPSF. The average PPSF can easily be skewed by properties that are outliers and can be less instructive. If one or more of the comparable properties is very similar to your house, it makes sense that yours should match their PPSF.

If you are trying to assess whether your asking price or offer price is on par with other sales nearby, it is always worth checking the PPSF of the comparable listings, but you want to be sure to dive into more detail among those comps for the best guidance.

Your Realtor or appraiser can take a much more comprehensive approach to assessing your home’s value. So work with your agent to consider all the variables among the comparable properties to yours as your primary approach. Utilize the PPSF for reference as your starting point or a final cross-check, and you’re on your way to a winning home valuation!

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