“Price Per Square Foot”

[New Guy]

It seems that a lot of statistics out there provide the price per square foot for homes. I am not a fan of that measure because it only takes into account the dwelling size and not the lot size.

Shouldn’t there be two statistics for “price per sq. ft.?” I don’t know about you, but I would prefer to have a 2000 sq. ft. dwelling on a 10,000+ sq. ft. lot rather than the same size home on a 5,000 – 6,000 sq. ft. lot yet it seems as though they are often priced similarly. Having two measures might avoid greedy builders from putting 10 homes on an acre of land.

I think the formula for price of a home should be something like this:

(D x $150) + (L x $Adjusted for region) = Price of a home.

D = Dwelling size in sq. ft.
L = Lot size in sq. ft.

I use $150 per square foot because that is roughly how much it would cost today (in So. CA) to build a “normal” home from the ground up. That number could be adjusted upward for higher quality homes in exclusive neighborhoods. The true value of a home should be derived by the land. Obviously beach property would have a higher value than property in Riverside, etc. Most areas should have a price of $20-25 or so per lot sq. ft. So in theory my formula would call for a 2000 sq. ft. home on a 5000 sq. ft. lot to be valued @ $400,000 – 425,000 and not the $800,000+ we see today.

Or do the realtors already have some sort of formula?

What formula would you all suggest?

[Alex_angel]

Realtors in SD have a simple formula.

It is “real price + commision + 100% markup + HOA + MR + fees + inflated Property tax”

Here is the equation with the number you quoted.

$400k + 6% +400k + $325 per month + $275 per month + $10000 + 1.75% = WAY TOO MUCH!

Very simple indeed.

[sdrealtor]

LOL, Thats pretty funny Alex but of course not how it’s done. Pricing is based upon previous sales and current market inventory. Depending upon the seller there might be a deluded seller premium added initially but a competent Realtor should be able to burn that off in a 30 to 90 days.

New Guy,
Thats one way homes are appraised but prices are determined by market conditions rather than replacement cost. There are also significant costs over and above actually building costs including permits, licensing, grading/site prep, environmental impact fees etc. Sometimes there is a premium over replacement cost (such as recent history) while other times there can be a discount. Replacement costs do seem to set a lower limit on prices in general.

[temeculaguy]

sd is right in saying that the value is what someone else will pay for it and the best basis is what someone else paid nearby for something similar. Don’t fret over the 800k prices, your ride is slowing coming to a full and complete stop, keep your hands and feet inside the car for your own safety (heard that at Magic Mountain last week and just knew it would apply to life somehow).

I hate replacement cost as a basis. I paid 190k for a house at the lowpoint of the last cycle. My insurance company (and confirmed by a second quote from another company) said that I needed to insure it for 270K for replacement cost. After I asked them if I could order one of the drinks they had been drinking they explained that building a single house is not as cost effective as building tract homes because the materials, subs, waste, plans, etc. all cost more when bulding a single house. So non-tract homes cannot use the same cost per sq.ft. as customs and large tracts cannot use small tract numbers. Lot size doesn’t work because many large lots have slopes and small lots have views in the same developments. As the former owner of a large lot with a slope, no thank you, I’ll pay more to have the smaller view lot and sit in a chair admiring the view rather than picking weeds on the hill every Saturday. Where the lot is located is far more important than the sq. ft. to many buyers.

[powayseller]

New Guy,

I had the same thought, and I ran the numbers for houses of different sizes a few months ago, and the data is surprising: $/sq ft goes up and down for the past year for each size range. $303, $307, $302, $308, $306, $305, $309, etc. just citing from memory.

So $/sq ft is not declining, even when grouping homes by size. The reason is that in a rising housing market, everything sells. In a declining housing market, only the pretty ones sell.

In March 07, the average price was up 3% over March 06.

So forget the average, median, Case-shiller, OFHEO, $/sq ft, because they don’t account for the distribution mix, remodels, and whatever else. The data lies. The data lies. The data lies.

The homebuilding analysts at Credit Suisse devoted an entire report to “Data Masks Grim Reality”, where they say the data lies. I have a summary of their findings on my website.

If you want to know what is really going on with prices, talk to realtors. Find out how much house A is worth today and how much it was worth 6 months ago, 1 year ago. Then you know what is happening with prices.

I am coming to the realization that real estate prices cannot be culled into one number, and that data is misleading or lies.

If there is one number I have to pick, it’s months supply, because it tells me if prices will move up or down.

CA Housing Forecast

[MANmom]

MANmom

Something to think about, some people (older, no kids, lazies) actually do not want a big yard to take care of…to each his own!

[sdrealtor]

PS
I am rolling on the floor laughing my *#%^ off. Last year you ridiculed me for saying the data lies and that the only way to know what was going on was to take an anecdotal approach by talking with realtors knowledgable about an area. You said you had no time for my ridiculous anecdotal approach and data was the only thing that matter. Time for a little mea culpea on your part while standing on the soapbox shouting exactly what you attacked me for.

SDR

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