Price per square foot is a common metric used in real estate to measure and compare the value or cost of properties. It represents the price of a property divided by the totals quare footage of that property.

Price per square foot allows buyers, sellers, and real estate professionals to compare the cost or value of different properties more objectively. It helps in evaluating whether a property is priced competitively within its market. It's important to note that while price per square foot is a useful tool, it should not be the sole factor in evaluating a property.Other factors such as location, condition, amenities, and market trends also play a more significant role in determining the value of real estate.

When New Canaan sellers consider that our buyers often come from cities like NYC where price-per-foot is dominant factor, is it any wonder that price-per-foot calculations have taken on such outsized importance? In New York prices go up as we travel up each floor and not all corners are considered equal. New Yorkers are hard-wired to think this way. There is no such orderly progression of values as we make our way down South Avenue.

The opposite is also true. Feet usually adds value, but until Covid acreage sometimes came with a penalty. Rarely is a 4-acre property worth 4 times as much as a 1-acre property. Looking at sales in the last 2 months the second most expensive sale and the second least expensive sales were both on lots of less than 1/3 acre.Houses on the largest lots ranged from below $1 million to over $4 million. Price per foot ranged from$331 to $947 with a median of $555. There is no correlation between price and acreage.

Consider an in-town listing on .14 of an acre for $1.45 million. Steps from South Avenue,It’s small at 2,248 feet. The tax assessor says the house is only 19% of the total value. Isthe asking price-per-foot $645 relevant in cases like this where the value is in thel ocation, not in an abundance of land, nor is the revalue in the structure? It is certainly less relevant. Price-per-foot is generally higher for small houses. Why? Because they have one kitchen and more than one bath, the most expensive parts of the house to construct.

For the same price you can buy a lot a different in-town lot for $500,000 and build anew house, same size, 2,248 feet, for $400 per foot and be done for $1,399,200. But youwouldn’t be steps from South Avenue. In that case the house would be worth 64% ofthe total value. Speculative builders follow the rule of thirds. They say land should be only one third of the value of the improved property. When they pay $1 million for a lot in New Canaan it is with the expectation that they can sell it for at least 3 times as much.

Appraisers use price per square foot when determining the value of a property. They compare the property being appraised to similar properties in the area to arrive at an estimate of its value. But, to further refine the number they will add and subtract foreach amenity or component that differentiates otherwise comparable properties. I tried this method to compare condominiums at Pride’s Crossing and to determine what is the value of an extra bedroom, a bathroom? Over the last 1000 days there have been 15 sales, 2 of which were 2 bedroom with 2.5 baths which sold for $689 per foot. The rest were 3 bedroom with between 2 and 5 bedrooms and average $565 per foot, (median $569.) within a range of $979,000 to $1,700,000 which comes out to $440 to $687 per foot. Ok, enough math. What did we learn? There was absolutely no correlation between price-per-foot and total price paid, or price and the number of bathrooms, within the 15 sales at Pride’s Crossing. It must be terribly frustrating for a New Yorker trying to deduce what the price of real estate should be based on the cold facts and without the aid of a broker and a site visit.

We see that while price per square foot is a useful tool, it can’t be the sole factor in evaluating a property. Other factors such as location, condition, amenities, and market trends play a more significant role in determining the value of real estate.

Another way we arrive at a property’s value is to compare the tax assessments. Although assessments are only updated every five years, they take into account the location and quality of the land. In a town where land value often represents the majority of the value this is often a better approach. A homeowner recently challenged me, “Why is my house not selling?”My answer was“Your house is priced $100 per foot higher than every one of your competitors. Your third floor is finished but it was not included in the square foot calculation. Correct your listing and you’ll move from most expensive in the category to the bottom half.

Another homeowner said the same, “Why is my house not selling?” We said while your presentation is nearly perfect, at this price per foot your contemporary home stands out at the very highest end of the range. Construction costs are are often double for a flat-roof, open-plan contemporary when compared to an average colonial. They often feature 10+ high ceilings, steel construction and massive windows. It’s tricky. Just because it cost more to construct does not mean the market value responds.

Maybe that’s why Zillow got out of the business of pricing houses with a slide-rule?

What have we learned? Pricing a house is not an exact science. Seasoned brokers will use all tools available to suggest appropriate pricing. In the end, the market always ends up determining what the house is worth when an offer is accepted and the house closes.

Notes from the Monday meeting:

We got an accepted offer in a bidding war against 6 others. Our buyer has been bidding on houses since February. Our offer was not the highest, and it had a mortgage contingency. The deciding factor was the letter describing the client’s situation and journey to reach this point with background explaining their qualifications and a pre-approval fully underwritten which must have given the seller confidence. A comprehensive offer packet and dialogue with the selling agent also speaks volumes when presenting your buyer’s offer in a professional manner.It makes the sellers feel as though the buyers and their agent will get this deal over the finish line. Intangibles often make all the difference. We also learned of another example of a deal that came together when furnishings were included to bridge the gap. Every deal has its own fingerprint for sure.

Check out John Engel’s Podcast, Boroughs & Burbs, the National Real Estate Conversation here.